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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-03-02 · 463 added, 806 removed, 294 unchanged (81% of the section changed)

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The following discussion and analysis should be read in conjunction with the audited consolidated financial statements and related notes included in this report.

In addition to

historical information, the following discussion contains forward-looking statements that involves risks, uncertainties and assumptions.

In addition to historical information, the following discussion contains forward-looking statements that involves risks, uncertainties and assumptions.

See “Forward-Looking Statements and Statistical Data” at page 3 of this report.

Please read “Item 1A.

Factors” for a discussion of factors that could cause our actual results to differ materially from our expectations

Risk Factors” for a discussion of factors that could cause our actual results to differ materially from our expectations

ACM Research was incorporated in California in 1998 and redomesticated in Delaware in 2016.

We perform strategic planning, marketing, and financial activities at our global corporate headquarters

in Fremont, California.

ACM Research is neither a PRC operating company nor do we conduct our operations in the PRC through the use of VIEs.

We perform strategic planning, marketing, and financial activities at our global corporate headquarters in Fremont, California.

ACM Research is neither a mainland China operating company nor do we conduct our operations in mainland China through the use of VIEs.

We supply advanced, innovative capital equipment developed for the global semiconductor industry.

Fabricators of advanced integrated circuits, or chips, can use our wet-cleaning and other

front-end processing tools in numerous steps to improve product yield, even at increasingly advanced process nodes.

We have designed these tools for use in fabricating foundry, logic and memory chips, including DRAM 3D NAND-flash memory chips,

and compound semiconductor chips.

Fabricators of advanced integrated circuits, or chips, can use our wet-cleaning and other front-end processing tools in numerous steps to improve product yield, even at increasingly advanced process nodes.

We have designed these tools for use in fabricating foundry, logic and memory chips, including DRAM 3D NAND-flash memory chips, power semiconductor and compound semiconductor chips.

We also develop, manufacture and sell a range of advanced packaging tools to wafer assembly and packaging customers.

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Our tools have been developed using our key proprietary technologies:

SAPS technology for flat and patterned wafer surfaces , which employs alternating phases of megasonic waves to deliver megasonic energy in a highly uniform manner on a

microscopic level;

TEBO technology for patterned wafer surfaces at advanced process nodes , which provides effective, damage-free cleaning for 2D and 3D patterned wafers with fine feature

Tahoe technology for cost and environmental savings , which delivers high cleaning performance using significantly less sulfuric acid and hydrogen peroxide than is

typically consumed by conventional high-temperature single-wafer cleaning tools;

ECP technology for advanced metal plating , which includes Ultra ECP ap, or Advanced Packaging, technology for back-end assembly processes, Ultra ECP 3d for

through-silicon-via, or tsv, and Ultra ECP map, or Multi-Anode Partial Plating, technology for front-end wafer fabrication processes.

• SAPS technology for flat and patterned wafer surfaces , which employs alternating phases of megasonic waves to deliver megasonic energy in a highly uniform manner on a microscopic level;

• TEBO technology for patterned wafer surfaces at advanced process nodes , which provides effective, damage-free cleaning for 2D and 3D patterned wafers with fine feature sizes;

• Tahoe technology for cost and environmental savings , which delivers high cleaning performance using significantly less sulfuric acid and hydrogen peroxide than is typically consumed by conventional high-temperature single-wafer cleaning tools;

• ECP technology for advanced metal plating , which includes Ultra ECP ap, or Advanced Packaging, technology for back-end assembly processes, Ultra ECP 3d for through-silicon-via, or tsv, and Ultra ECP map, or Multi-Anode Partial Plating, technology for front-end wafer fabrication processes.

In 2021, 2022 and 2023 we introduced and delivered a range of new tools intended to broaden our revenue opportunity with global semiconductor manufacturers.

Product extensions include the Ultra

SFP ap tool for advanced packaging solutions, the Ultra C VI 18-chamber single wafer cleaning tool for advanced memory devices, and the Ultra ECP 3d platform for through-silicon-via, or tsv, application.

New product lines include the Ultra fn

Furnace, our first dry processing tool, and a suite of semi-critical cleaning systems which include single wafer back side cleaning, scrubber, and auto bench cleaning tools.

We added two major new product categories in 2022 with the launch of the Ultra Pmax™ PECVD tool, which is equipped with a proprietary designed chamber, gas distribution unit and chuck, and is

intended to provide better film uniformity, reduced film stress, and improved particle performance, and the introduction of the Ultra Track tool, a 300mm process tool that delivers uniform air downflow, fast robot handling and customizable

software to address specific customer requirements, and has multiple features that enhance performance across defectivity, throughput, and cost of ownership.

We conduct a substantial majority of our product development, manufacturing, support and services in the PRC, with additional product development and subsystem production in South Korea.

Substantially all of our integrated tools are built to order at our manufacturing facilities in the Pudong region of Shanghai, which now encompass a total of 236,000 square feet of floor space for production capacity, with 100,000 square feet

having been added in 2021 with the lease of a second building in the Pudong region of Shanghai.

In May 2020 ACM Shanghai, through its wholly owned subsidiary ACM Shengwei, entered into an agreement for a land use right in the Lingang region of

In 2020 ACM Shengwei began a multi-year construction project for a new 1,000,000 square foot development and production center that will incorporate state-of-the-art manufacturing systems and automation technologies and will provide

floor space to support significantly increased production capacity and related R&D activities.

We expect to complete construction of the first Lingang manufacturing building and commence initial production in the second half of 2023

Product extensions include the Ultra SFP ap tool for advanced packaging solutions, the Ultra C VI 18-chamber single wafer cleaning tool for advanced memory devices, and the Ultra ECP 3d platform for through-silicon-via, or tsv, application.

New product lines include the Ultra fn Furnace, our first dry processing tool, and a suite of semi-critical cleaning systems which include single wafer back side cleaning, scrubber, and auto bench cleaning tools.

We added two major new product categories in 2022 with the launch of the Ultra Pmax™ PECVD tool, which is equipped with a proprietary designed chamber, gas distribution unit and chuck, and is intended to provide better film uniformity, reduced film stress, and improved particle performance, and the introduction of the Ultra Track tool, a 300mm process tool that delivers uniform air downflow, fast robot handling and customizable software to address specific customer requirements, and has multiple features that enhance performance across defectivity, throughput, and cost of ownership.

We conduct a substantial majority of our product development, manufacturing, support and services in mainland China, with additional product development and subsystem production in Korea.

Substantially all of our integrated tools are built to order at our manufacturing facilities in the Pudong region of Shanghai, which now encompass a tota l of 236,000 squ are feet of floor space for production capacity, with 100,000 square feet having been added in 2021 with the lease of a second building in the Pudong region of Shanghai.

In May 2020 ACM Shanghai, through its wholly owned subsidiary ACM Shengwei, entered into an agreement for a land use right in the Lingang region of Shanghai.

We expect to complete construction of the first Lingang manufacturing building and commence initial production in the first half of 2024 timeframe.

See “I tem 2.

Properties” of Part I of this report.

Our experience has shown that chip manufacturers in the PRC and throughout Asia demand equipment meeting their specific technical requirements and prefer building relationships with local

requirements, encourage them to adopt our SAPS, TEBO, Tahoe, ECP, furnace, PECVD, Track, and other technologies, and enable us to design innovative products and solutions to address their needs.

Our experience has shown that chip manufacturers in mainland China and throughout Asia demand equipment meeting their specific technical requirements and prefer building relationships with local suppliers.

We will continue to seek to leverage our local presence to address the growing market for semiconductor manufacturing equipment in the region by working closely with regional chip manufacturers to understand their specific requirements, encourage them to adopt our SAPS, TEBO, Tahoe, ECP, furnace, PECVD, Track, and other technologies, and enable us to design innovative products and solutions to address their needs.

Our Independent Registered Public Accounting Firm

The HFCA Act requires that the PCAOB determine whether it is unable to inspect or investigate completely registered public accounting firms located in a non-U.S.

jurisdiction because of a

position taken by one or more authorities in any non-U.S.

Holding Foreign Companies Accountable Act, or the HFCA Act, requires that the Public Company Accounting Oversight Board, or the PCAOB, determine whether it is unable to inspect or investigate completely registered public accounting firms located in a non-U.S.

jurisdiction because of a position taken by one or more authorities in any non-U.S.

jurisdiction.

BDO China had been our independent registered public accounting firm in recent years, including for the year ended December 31, 2021.

BDO China Shu Lun Pan Certified Public Accountants LLP, or BDO China, had been our independent registered public accounting firm in recent years, including for the year ended December 31, 2021.

On June 22, 2021, the U.S.

passed the Accelerating Holding Foreign Companies Accountable Act, which was enacted on December 29, 2022 under the Consolidated Appropriations Act, 2023, as further described below.

On December 16, 2021, the PCAOB reported its determination

that it was unable to inspect or investigate completely registered public accounting firms headquartered in the PRC and Hong Kong, including BDO China, because of positions taken by PRC authorities in those jurisdictions.

On March 30, 2022,

based on this determination, ACM Research was transferred to the SEC’s “Conclusive list of issuers identified under the HFCA.” See “Item 1A.

Risk Factors—Risks Related to International Aspects of Our Business—We could be adversely affected if

we are unable to comply with recent and proposed legislation and regulations regarding improved access to audit and other information and audit inspections of accounting firms operating in the PRC” of this report for more information.

current regulations, if ACM Research were to be included on this list for two consecutive years due to our independent auditor being located in a jurisdiction that does not allow for PCAOB inspections, the SEC would prohibit trading in our

securities and this ultimately could cause our securities to be delisted in the U.S., and their value may significantly decline or become worthless.

On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in the PRC and Hong Kong in

2022 and vacated its previous December 16, 2021 determination to the contrary.

However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in the PRC and

Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor’s, control.

PRC authorities will need to ensure that the PCAOB continues to have full access for inspections and investigations in 2023 and

Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in the PRC and Hong Kong, among other jurisdictions.

If the PRC authorities do not allow the PCAOB complete access for inspections and

investigations for two consecutive years, the SEC would prohibit trading in the securities of issuers engaging those audit firms, as required under the HFCA Act.

Further, on December 29, 2022, the Consolidated Appropriations Act, 2023, was

signed into law by U.S.

(originally such threshold under the HFCA Act was three consecutive years), and so that any foreign jurisdiction could be the reason why the PCAOB does not have complete access to inspect or investigate a company’s public accounting firm

(originally the HFCA Act only applied if the PCAOB’s ability to inspect or investigate was due to a position taken by an authority in the jurisdiction where the relevant public accounting firm was located).

In addition, on June 30, 2022, stockholders of ACM Research ratified the appointment of Armanino LLP as our independent auditor for the year ended December 31, 2022.

Armanino LLP is neither

headquartered in the PRC or Hong Kong nor was it subject to the determinations announced by the PCAOB on December 16, 2021, which determinations were vacated by the PCAOB on December 15, 2022, and, subsequent to the filing of this report, we

do not believe ACM Research will appear on the “Conclusive list of issuers identified under the HFCAA” for a second time.

Senate passed the Accelerating Holding Foreign Companies Accountable Act, which was enacted on December 29, 2022 under the Consolidated Appropriations Act, 2023, as further described below.

On December 16, 2021, the PCAOB reported its determination that it was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including BDO China, because of positions taken by mainland China authorities in those jurisdictions.

On March 30, 2022, based on this determination, ACM Research was transferred to the SEC’s “Conclusive list of issuers identified under the HFCAA.” See “Item 1A.

Risk Factors—Risks Related to International Aspects of Our Business—We could be adversely affected if we are unable to comply with recent and proposed legislation and regulations regarding improved access to audit and other information and audit inspections of accounting firms operating in mainland China” of this report for more information.

Under current regulations, if ACM Research were to be included on this list for two consecutive years due to our independent auditor being located in a jurisdiction that does not allow for PCAOB inspections, the SEC would prohibit trading in our securities and this ultimately could cause our securities to be delisted in the U.S., and their value may significantly decline or become worthless.

On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong in 2022 and vacated its previous December 16, 2021 determination to the contrary.

However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor’s, control.

mainland China authorities will need to ensure that the PCAOB continues to have full access for inspections and investigations in 2023 and beyond.

Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions.

If the mainland China authorities do not allow the PCAOB complete access for inspections and investigations for two consecutive years, the SEC would prohibit trading in the securities of issuers engaging those audit firms, as required under the HFCA Act.

Further, on December 29, 2022, the Consolidated Appropriations Act, 2023, was signed into law by U.S.

President Biden, which, among other things, amended the HFCA Act to reduce the number of consecutive non-inspection years that would trigger the trading prohibition under the HFCA Act from three years to two years (originally such threshold under the HFCA Act was three consecutive years), and so that any foreign jurisdiction could be the reason why the PCAOB does not have complete access to inspect or investigate a company’s public accounting firm (originally the HFCA Act only applied if the PCAOB’s ability to inspect or investigate was due to a position taken by an authority in the jurisdiction where the relevant public accounting firm was located).

On June 30, 2022, and June 15, 2023, stockholders of ACM Research ratified the appointment of Armanino as our independent auditor for the years ended December 31, 2022 and 2023, respectively.

Armanino was neither headquartered in mainland China or Hong Kong nor was it subject to the determinations announced by the PCAOB on December 16, 2021, which determinations were vacated by the PCAOB on December 15, 2022.

On July 21, 2023, we were informed by Armanino, that Armanino would resign as our independent auditor effective as of the earlier of (a) the date we engaged a new independent registered public accounting firm or (b) the filing of our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2023.

On September 14, 2023, the Audit Committee completed a competitive selection process to select and appoint a new accounting firm to serve as our independent registered public accounting firm commencing with the audit of our financial statements for the fiscal year ended December 31, 2023.

As a result of this process, the Audit Committee approved the engagement of E&Y as our independent registered public accounting firm for the fiscal year ended December 31, 2023.

The engagement of E&Y became effective on September 20, 2023.

E&Y is a PCAOB-registered firm that is headquartered in mainland China;

however, we do not believe ACM Research will appear on the “Conclusive list of issuers identified under the HFCAA” for a second consecutive time, as the determinations announced by the PCAOB on December 16, 2021 were vacated by the PCAOB on December 15, 2022.

STAR Listing and IPO

On November 18, 2021, ACM’s operating subsidiary ACM Shanghai completed:

a listing, which we refer to as the STAR Listing, of shares of ACM Shanghai on the Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd, known as the STAR Market;

a concurrent initial public offering, which we refer to as the STAR IPO, of ACM Shanghai shares in the PRC, at a pre-offering valuation of not less than RMB 5.15 billion ($747.1 million).

• a listing, which we refer to as the STAR Listing, of shares of ACM Shanghai on the Shanghai Stock Exchange’s SciTech innovAtion boaRd, known as the STAR Market;

• a concurrent initial public offering, which we refer to as the STAR IPO, of ACM Shanghai shares in mainland China, at a pre-offering valuation of not less than RMB 5.15 billion ($747.1 million).

Following the completion of the STAR IPO, ACM Shanghai’s shares began trading on the STAR Market under the stock code 688082.

In the STAR IPO, ACM Shanghai issued 43,355,753 shares,

representing ten percent of the total 433,557,100 shares outstanding after the STAR IPO.

The shares were issued at a public offering price of RMB 85.00 per share, and the proceeds of the STAR IPO totaled approximately $545.5 million, net of

fees and expenses.

In the STAR IPO, ACM Shanghai issued 43,355,753 shares, representing ten percent of the total 433,557,100 shares outstanding after the STAR IPO.

The shares were issued at a public offering price of RMB 85.00 per share, and the proceeds of the STAR IPO totaled approximately $545.5 million, net of fees and expenses.

Upon completion of the STAR IPO, ACM owned approximately 82.5% of the outstanding ACM Shanghai shares.

The net proceeds of the STAR IPO are expected to be used to fund:

the land lease for, and construction of, ACM Shanghai’s proposed development and production center in the Lingang region of Shanghai;

product development to upgrade and expand our process equipment targeted at more advanced process nodes, including technical improvement and development of TEBO megasonic cleaning equipment, Tahoe single wafer

wet bench combined cleaning equipment, front-end brush scrubbing equipment, auto bench and backside cleaning equipment, electroplating equipment, stress free polish equipment, vertical furnace equipment, and additional new products to

expand our product portfolio;

working capital.

We believe the STAR Listing will help us scale our business in mainland PRC, as we continue to seek to broaden our markets in Europe, Japan, South Korea, Taiwan and the United States.

headquarters will continue to be located in Fremont, California, and we are committed to maintaining the listing of Class A common stock on the Nasdaq Global Market.

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).

We believe the STAR Listing will continue to help scale our business in mainland China, and we continue to seek to broaden our markets in Europe, Japan, Korea, Taiwan and the United States.

Our global headquarters are located in Fremont, California, and we are committed to maintaining the listing of Class A common stock on the Nasdaq Global Market.

ACM Shanghai Dividend

During year ended December 31, 2023, ACM Shanghai paid a dividend to the stockholders of ACM Shanghai (including ACM Research) in the amount of RMB 0.372 per share for an aggregate total of RMB 161.28 million ($22.2 million).

Restrictions Imposed by the U.S.

Department of Commerce on PRC-Based Semiconductor Producers

Substantially all of ACM Shanghai’s customers and a significant portion of its operations are based in the PRC.

In 2022, 43.8% of our revenue was derived from three customers:

The Huali Huahong

Group, a leading PRC-based foundry, accounted for 18.2% of our revenue;

SMIC, a leading PRC-based foundry, accounted for 15.6% of our revenue, and YMTC, a leading PRC-based memory chip company, together with one of its subsidiaries, accounted

for 10.0% of our revenue.

In 2021, 48.9% of our revenue was derived from two PRC-based customers:

The Huali Huahong Group accounted for 28.1% of our revenue and YMTC accounted for 20.8% of our revenue.

Department of Commerce on mainland China-Based Semiconductor Producers

In early October 2022 the U.S.

government enacted new rules aimed at restricting U.S.

support for the PRC’s ability to manufacture advanced semiconductors.

The rules include new export license

requirements for exports, re-exports or transfers to or within the PRC of additional types of semiconductor manufacturing items, items for use in manufacturing designated types of semiconductor manufacturing equipment in the PRC, and

semiconductor manufacturing equipment for use at certain IC manufacturing and development facilities in the PRC.

support for mainland China’s ability to manufacture advanced semiconductors.

The rules included 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 semiconductors at PRC fabrication facilities meeting specified criteria, even if no items subject to the EAR are involved.

ACM Shanghai has determined that several of its customers have PRC-based facilities that meet the restricted criteria, and has also determined that several of its products may meet the parameters

of export control classification numbers, or ECCNs, affected by the restrictions.

Accordingly, depending on the details of the final implementation of these new restrictions and associated licensing policies, ACM may not be able to import, or

may face substantial restrictions in importing, parts from the United States to support tool shipments to such facilities, or to be embedded into tools defined by affected ECCNs.

ACM and ACM Shanghai have implemented modifications to their

existing business policies and practices in response to the new restrictions, including by imposing limitations on the activities of their U.S.

persons and their supply chains more broadly to comply with the new regulations.

We believe that as a result of the new restrictions, several ACM Shanghai customers have significantly reduced production and related capital spending at facilities meeting the restricted advanced

node capabilities.

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 continually adjust or modify its policies and practices as required to comply with these or other related updates.

Bas ed 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 and October 2023 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 regulations.

These factors had an adverse impact on ACM Shanghai’s shipments and sales in the three

months ended December 31, 2022.

We anticipate these factors will continue to have an adverse impact on ACM Shanghai’s shipments and sales in future periods.

See “Item 1A.

Risk Factors—Regulatory Risks—Our ability to sell our tools to Chinese

customers has been impacted, and will likely to be materially and adversely impacted, by export license requirements, other regulatory changes, or other actions taken by the U.S.

These factors had an adverse impact on ACM Shanghai’s shipments and sales for the twelve months ended December 30, 2023.

During the twelve months ended December 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.

COVID–19 Pandemic

The worldwide COVID-19 health pandemic and related government and private sector responsive actions have adversely affected the economies and financial markets of many countries and specifically

have negatively impacted the Company’s business operations, including in the PRC and the United States.

The continuation of the COVID-19 pandemic could continue to result in economic uncertainty and global economic policies that could reduce

demand for the Company’s products and its customers’ chips and have a material adverse impact on the Company’s business, operating results and financial condition.

For an explanation of some of the risks we potentially face, please read

carefully the information provided under “Item 1A.

Risk Factors—Risks Related to the COVID–19 Pandemic,” of Part I of this report.

The following summary reflects our expectations and estimates based on information known to us as of the date of this filing:

We conduct substantially all of our product development, manufacturing, support and services in the PRC through ACM Shanghai, and those activities have been

directly impacted by COVID–19 and related restrictions on transportation and public appearances.

In March 2022, several regions in China began to experience elevated levels of COVID-19 infections, and the PRC government instituted policies to restrict the spread of the

virus, which are referred to as zero-COVID policies.

The policies began with an increase of “spot quarantines,” under which a positive polymerase chain reaction (PCR) or other test would result in the quarantining of individual buildings,

groups of buildings, or even full neighborhoods.

The policies were later expanded to full-city quarantines, including in the City of Shanghai, where substantially all of ACM Shanghai’s operations are located.

COVID-19 related restrictions in

Shanghai began to limit employee access to, and logistics activities of, ACM Shanghai’s offices and production facilities in the Pudong district of Shanghai in March 2022, and therefore limited ACM Shanghai’s ability to ship finished products

to customers and to produce new products.

Spot quarantines in mid-March 2022 began to impact a number of ACM Shanghai’s employees and led to a closure of ACM Shanghai’s administrative and R&D offices in Zhangjiang in the Pudong district.

subsequent quarantine of the entire Pudong region of Shanghai was imposed in late March 2022 and impacted the operation of ACM Shanghai’s Chuansha production facility.

Furthermore, a number of our customers have substantial operations based in

operations areas of the PRC, including in the City of Shanghai, subject to the full-city restrictions, which began limiting the operations of those customers in the first quarter of 2022, including inhibiting their ability to receive, implement

and operate new tools for their manufacturing facilities.

As a result, in some cases, ACM Shanghai was required to defer shipments of finished products to these customers because of operational and logistics limitations affecting customers

rather than, or in addition to, ACM Shanghai.

In late April 2022, ACM Shanghai began to resume some operations at the Chuansha manufacturing site using the “closed loop method,” in which a limited collection of workers

remains together as a group between a single hotel, the ACM Shanghai facility, and a dedicated bus transportation route, also referred to as “two points and one line,” and had resumed substantially all of its Chuansha manufacturing site

operations by the end of the second quarter of 2022.

In mid-June 2022, substantially all of ACM Shanghai’s R&D and administrative employees at its Zhangjiang facility were allowed to return to work under strict safety

protocols after a period of restricted access to the building that for many employees was partially mitigated by being able to work from home.

ACM Shanghai established several policies to help avoid or limit future outbreaks among employees and

thus protect employee safety and limit the possibility of a facility reclosing.

The effects of the PRC restrictions continued for several months, with a gradual return of PRC operations, production capacity, and global logistics as Shanghai and other areas

in the PRC began to reopen.

We cannot assure you that closures or reductions of PRC operations or production, whether of ACM Shanghai or of some of its key customers, may not be extended in the future as the result of business interruptions

arising from protective measures being taken by the PRC and other governmental agencies or of other consequences of COVID-19.

In December 2022, the PRC government relaxed its zero-COVID policies, which resulted in large scale COVID-19 infections throughout China, including Shanghai.

A significant

number of ACM Shanghai employees were also infected, and in many cases missed work for one or several weeks, which caused administrative and operational challenges in late 2022 and early 2023.

We cannot assure you that illnesses of ACM Shanghai

employees, or of its customers, suppliers or other third parties, may not result in closures, reductions of PRC operations or production, or additional administrative inefficiencies in the upcoming months or quarters.

Our corporate headquarters are located in Fremont, California in the San Francisco Bay Area and are the subject of a number of state and county public health directives and

These actions have not negatively impacted our business to date, however, because of the limited number of employees at our headquarters and the nature of the work they generally perform.

To date we have not experienced absenteeism of

management or other key employees, other than certain of our executive officers being delayed in traveling between the PRC, our California office, and other global locations, and a significant number of ACM Shanghai employees missing work in

late 2022 and early 2023 for one or several weeks due to COVID-19 related illness following relaxation of the PRC’s zero-COVID policies in December 2022.

Our customers’, including the customers of ACM Shanghai, business operations have been, and are continuing to be, subject to business interruptions arising

from the COVID–19 pandemic.

Historically substantially all of our revenue has been derived from customers located in the PRC and surrounding areas that have been impacted by COVID–19.

Three customers that accounted for 43.8% of our

revenue in 2022 are based in the PRC, two customers that accounted for 48.9% of our revenue in 2021 are based in the PRC, and three customers that accounted for 75.8% of our revenue in 2020 are based in the PRC.

One of those customers,

YMTC — which, together with one of its subsidiaries, accounted for 10.0% of our 2022 revenue, 20.8% of our 2021 revenue, and 26.8% of our 2020 revenue, — is based in Wuhan.

While YMTC and other key customers continued to operate their

fabrication facilities without interruption during and after the first quarter of 2020, some customers have been forced to restrict access of service personnel and deliveries to and from their facilities.

We have experienced longer and,

in some cases, more costly shipping expenses in the delivery of tools to certain customers.

Our global supply chain includes components sourced from the PRC, Japan, Taiwan, the United States and Europe.

While, to date, we have not experienced

material issues with our supply chain beyond the logistics related to the Shanghai facilities of ACM Shanghai, supply chain constraints have intensified due to COVID-19, contributing to global shortages in the supply of semiconductors

and other materials, and in some cases the pricing of materials used in the production of our own tools.

As with our customers, we continue to be in close contact with our key suppliers to help ensure we are able to identify any

potential supply issues that may arise.

Our strategy includes a number of plans to support the growth of our core business, including ACM Shanghai’s acquisition of a land use right in the Lingang

area of Shanghai where ACM Shanghai began construction of a new R&D center and factory in July 2020.

The extent to which COVID–19 impacts these projects will depend on future developments that are highly uncertain, but to date, the

timing of these ongoing projects has not been delayed or significantly disrupted by COVID–19 or related government measures.

During the first six months of 2022, we experienced a negative impact to revenue and shipments as a result of restricted access and logistics to our Shanghai-based production and administrative

Thirteen tools amounting to $13 million in revenue and $24 million in shipments that could not be shipped to customers in the three-months ended March 31, 2022 were subsequently shipped in the three months ended June 30, 2022.

result of the restrictions, we experienced a modest increase to operational costs due to increased logistics costs and inefficiencies that resulted from the restrictions, and an increase in cash used in operations due in part to an increase in

accounts receivables that resulted from a shift of shipments towards the latter part of the period.

During the year ended December 31, 2022, we experienced general inefficiencies in administrative, research and development and other activities due to some employees who were required to

quarantine ‘in place’ at their residence due presumably to the detected possible exposure to COVID-19.

In many cases, the employees were able to work remotely to mitigate the effects.

With the relaxation of the PRC’s zero-COVID policies in

December 2022, and the subsequent widespread infections of China’s population, we anticipate potential impacts to our PRC operations in the foreseeable future.

Key Components of Results of Operations

We develop, manufacture and sell innovative capital equipment to the global semiconductor industry.

Since we sell tools to a small number of customers and we customize those tools to fulfill the

customers’ specific requirements, our revenue generation fluctuates, depending on the length of the sales, development and evaluation phases:

Since we sell tools to a small number of customers and we customize those tools to fulfill the customers’ specific requirements, our revenue generation fluctuates, depending on the length of the sales, development and evaluation phases:

• Sales and Development.

During the sale process we may, depending on a prospective customer’s specifications and requirements, need to perform additional research,

development and testing to establish that a tool can meet the prospective customer’s requirements.

We then host an in-house demonstration of the customized tool prototype.

Sales cycles for orders that require limited customization and

do not require that we develop new technology usually take from 6 to 12 months, while the product life cycle, including the initial design, demonstration and final assembly phases, for orders requiring development and testing of new

technologies can take as long as 2 to 4 years.

As we expand our customer base, we expect to gain more repeat purchase orders for tools that we have already developed and tested, which will reduce the need for a demonstration phase and

shorten the development cycle.

During the sale process we may, depending on a prospective customer’s specifications and requirements, need to perform additional research, development and testing to establish that a tool can meet the prospective customer’s requirements.

Sales cycles for orders that require limited customization and do not require that we develop new technology usually take from 6 to 12 months, while the product life cycle, including the initial design, demonstration and final assembly phases, for orders requiring development and testing of new technologies can take as long as 2 to 4 years.

As we expand our customer base, we expect to gain more repeat purchase orders for tools that we have already developed and tested, which we believe will reduce the need for a demonstration phase and shorten the development cycle.

• Evaluation Periods.

When a chip manufacturer proposes to purchase a particular type of tool from us for the first time, we offer the manufacturer an opportunity to

evaluate the tool for a period that can extend for 24 months or longer.

When a chip manufacturer proposes to purchase a particular type of tool from us for the first time, we offer the manufacturer an opportunity to evaluate the tool for a period that can extend for 24 months or longer.

In some cases, we do not receive any payment on first-time purchases until the tool is accepted.

As a result, we may spend more than $2.0 million to produce a tool

without receiving payment for more than 24 months or, if the tool is not accepted, without receiving any payment.

As a result, we may spend more than $2.0 million to produce a tool without receiving payment for more than 24 months or, if the tool is not accepted, without receiving any payment.

Please see “Item 1A.

Risk Factors—Risks Related to Our Business and Our Industry—We may incur significant expenses long

before we can recognize revenue from new products, if at all, due to the costs and length of research, development, manufacturing and customer evaluation process cycles.”

Risk Factors—Risks Related to Our Business and Our Industry—We may incur significant expenses long before we can recognize revenue from new products, if at all, due to the costs and length of research, development, manufacturing and customer evaluation process cycles.”

• Purchase Orders.

In accordance with industry practice, sales of our tools are made pursuant to purchase orders.

Each purchase order from a customer for one of our

tools contains specific technical requirements intended to ensure, among other things, that the tool will be compatible with the customer’s manufacturing process line.

Until a purchase order is received, we do not have a binding

purchase commitment.

Each purchase order from a customer for one of our tools contains specific technical requirements intended to ensure, among other things, that the tool will be compatible with the customer’s manufacturing process line.

purchase order is received, we do not have a binding purchase commitment.

Some of our customers to date have provided us with non-binding one- to two-year forecasts of their anticipated demands, and we expect future customers to furnish similar non-binding forecasts for planning purposes.

Any of those forecasts would be subject to change, however, by the customer at any time, without notice to us.

• Fulfillment.

We seek to obtain a purchase order for a tool from three to four months in advance of the expected delivery date.

Depending upon the nature of a

customer’s specifications, the lead time for production of a tool generally will extend from two to four months.

The lead-time can be more than six months, however, and in some cases, we may need to begin producing a tool based on a

customer’s non-binding forecast, rather than waiting to receive a binding purchase order.

Depending upon the nature of a customer’s specifications, the lead time for production of a tool generally will extend from two to four months.

The lead-time can be more than six months, however, and in some cases, we may need to begin producing a tool based on a customer’s non-binding forecast, rather than waiting to receive a binding purchase order.

We expect our sales prices generally to range from $0.5 million to more than $5 million for our production tools.

The sales price of a particular tool will vary depending upon the required

specifications.

The sales price of a particular tool will vary depending upon the required specifications.

We have designed equipment models using a modular configuration that we customize to meet customers’ technical specifications.

For example, our Ultra C models for SAPS, TEBO and Tahoe solutions use common modular configurations

that enable us to create a wet-cleaning tool meeting a customer’s specific requirements, while using pre-existing designs for chamber, electrical, chemical delivery and other modules.

Because of the relatively large purchase prices of our tools, customers generally pay in installments.

For a customer’s repeat purchase of a particular type of tool, the specific payment terms are

negotiated in connection with acceptance milestones of a purchase order.

Based on our experience with repeat sales of our tools, we expect that we will receive an initial payment upon delivery of a tool in connection with a repeat purchase,

with the balance being paid after the tool has been tested and accepted by the customer.

For example, our Ultra C models for SAPS, TEBO and Tahoe solutions use common modular configurations that enable us to create a wet-cleaning tool meeting a customer’s specific requirements, while using pre-existing designs for chamber, electrical, chemical delivery and other modules.

Because of the relatively high purchase prices of our tools, customers generally pay in installments.

For a customer’s repeat purchase of a particular type of tool, the specific payment terms are negotiated in connection with acceptance milestones of a purchase order.

Based on our experience with repeat sales of our tools, we expect that we will receive an initial payment upon delivery of a tool in connection with a repeat purchase, with the balance being paid after the tool has been tested and accepted by the customer.

Our sales arrangements for repeat purchases do not include a general right of return.

Based on our market experience, we believe that implementation of our equipment by one of our selected leading companies will attract and encourage other manufacturers to evaluate our equipment,

because the leading company’s implementation will serve as validation of our equipment and will enable the other manufacturers to shorten their evaluation processes.

We placed our first SAPS-based tool in 2009 as a prototype.

We worked closely

with the customer for two years in debugging and modifying the tool, and the customer then spent two more years of qualification and running pilot production before beginning volume manufacturing.

We expect that the period from new product

introduction to high volume manufacturing will be three years or less in the future.

Please see “Item 1A.

Risk Factors— Risks Related to Our Business and Our Industry—We depend on a small number of

customers for a substantial portion of our revenue, and the loss of, or a significant reduction in orders from, one or more of our major customers could have a material adverse effect on our revenue and operating results.

There are also a

limited number of potential customers for our products.”

Substantially all of our sales in 2022, 2021 and 2020 were to customers located in Asia, and we anticipate that a substantial majority of our revenue will continue to come from customers located

in this region for the near future.

Substantially all of our sales in 2023, 2022, and 2021 were to customers located in Asia, and we anticipate that a substantial majority of our revenue will continue to come from customers located in this region for the near future.

We have increased our sales efforts to penetrate the markets in North America and Western Europe.

We utilize ASC 606 which was adopted in 2018 set forth in Accounting Standards Update, or ASU, No.

2014-09, Revenue from Contracts with Customers (Topic 606) ,

of the Financial Accounting Standards Board, or FASB, regarding the recognition, presentation and disclosure of revenue in our financial statements as described below under “—Critical Accounting Estimates—Revenue Recognition.”

We offer extended maintenance service contracts to provide services such as trouble-shooting or fine-tuning tools, and installing spare parts, following expiration of applicable initial standard

assurance type warranty coverage periods, which for sales to date have extended from 12 to 36 months as described under “—Critical Accounting Estimates—Warranty.” In 2022, 2021 and 2020, we received payments for parts and labor for service

activities provided from time to time, but as of December 31, 2022 we had not yet entered into extended maintenance service contracts with respect to the substantial majority of tools for which initial warranty coverage had expired.

to enter into extended maintenance service contracts with customers as additional initial warranties expire, but we do not expect revenue from extended maintenance service contracts to represent a material portion of our revenue in the future.

The loss or delay of multiple large sale transactions in a quarter could impact our results of operations for that quarter and any future quarters for which revenue from that transaction is lost

or delayed, as described under “Item 1A.

Class A common stock.” It is difficult to predict accurately when, or even if, we can complete a sale of a tool to a potential customer or to increase sales to any existing customer.

Our tool demand forecasts are based on multiple assumptions,

including non-binding forecasts received from customers years in advance, each of which may introduce error into our estimates.

Difficulties in forecasting demand for our tools make it difficult for us to project future operating results and

may lead to periodic inventory shortages or excess spending on inventory or on tools that may not be purchased, as further described in “Item 1A.

Risk Factors—Risks Related to Our Business and Our Industry—Difficulties in forecasting demand for

our tools may lead to periodic inventory shortages or excess spending on inventory items that may not be used.”

2014-09, Revenue from Contracts with Customers (Topic 606) , of the Financial Accounting Standards Board, or FASB, regarding the recognition, presentation and disclosure of revenue in our financial statements as described below under “—Critical Accounting Estimates—Revenue Recognition.”

We offer extended maintenance service contracts to provide services such as trouble-shooting or fine-tuning tools, and installing spare parts, following expiration of applicable initial standard assurance type warranty coverage periods, which for sales to date have extended from 12 to 36 months as described under “—Critical Accounting Estimates—Warranty.” In 2023, 2022, and 2021, we received payments for parts and labor for service activities provided from time to time, but as of December 31, 2023 we had not yet entered into extended maintenance service contracts with respect to the substantial majority of tools for whi ch initial warranty coverage had expired.

We expect to enter into extended maintenance service contracts with customers as additional initial warranties expire, but we do not expect revenue from extended maintenance service contracts to represent a material portion of our revenue in the future.

The loss or delay of multiple large sale transactions in a quarter could impact our results of operations for that quarter and any future quarters for which revenue from that transaction is lost or delayed, as described under “Item 1A.

Risk Factors—Risks Related to Our Business and Our Industry—Our quarterly operating results can be difficult to predict and can fluctuate substantially, which could result in volatility in the price of Class A common stock.” It is difficult to predict accurately when, or even if, we can complete a sale of a tool to a potential customer or to increase sales to any existing customer.

Our tool demand forecasts are based on multiple assumptions, including non-binding forecasts received from customers years in advance, each of which may introduce error into our estimates.

Difficulties in forecasting demand for our tools make it difficult for us to project future operating results and may lead to periodic inventory shortages or excess spending on inventory or on tools that may not be purchased, as further described in “Item 1A.

Risk Factors—Risks Related to Our Business and Our Industry—Difficulties in forecasting demand for our tools may lead to periodic inventory shortages or excess spending on inventory items that may not be used.”

Cost of Revenue

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• other expenses attributable to our manufacturing department;

• inventory provision;

• allocated overhead for rent and utilities.

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Please see “Item 1A.

Risk Factors—Risks Related to Our Business and Our Industry—Our customers do not enter into long-term

purchase commitments, and they may decrease, cancel or delay their projected purchases at any time.”

As our customer base and tool installations continue to grow, we will need to hire additional manufacturing personnel.

The rates at which we add customers and install tools will affect the level

and time of this spending.

Risk Factors—Risks Related to Our Business and Our Industry—Our customers do not generally enter into long-term purchase commitments, and they may decrease, cancel or delay their projected purchases at any time.”

As our customer base and tool installations continue to grow, we may need to hire additional manufacturing personnel.

The rates at which we add customers and install tools will affect the level and time of this spending.

In addition, because we often import components and spare parts from the United States, we have experienced, and expect to continue to experience, the effect of the currency fluctuations on our cost of revenue.

We generally expect gross margin to range between 40% and 45% for the foreseeable future, with direct manufacturing costs approximating 50% to 55% of revenue and overhead costs totaling

approximately 5% of revenue.

We generally expect gross margin to range between 40% and 45% for the foreseeable future, with direct manufacturing costs approximating 50% to 55% of revenue and overhead costs totaling approximatel y 5% of revenue.

We seek to maintain our gross margin by continuing to develop proprietary technologies that avoid pricing pressure for our wet cleaning equipment.

We actively manage our operations through

principles of operational excellence designed to ensure continuing improvement in the efficiency and quality of our manufacturing operations by, for example, implementing factory constraint management and change control and inventory management

We actively manage our operations through principles of operational excellence designed to ensure continuing improvement in the efficiency and quality of our manufacturing operations by, for example, implementing factory constraint management and change control and inventory management systems.

In addition, our purchasing department actively seeks to identify and negotiate supply contracts with improved pricing to reduce cost of revenue.

A significant portion of our raw materials are denominated in the RMB, while the majority of our purchase orders are denominated in U.S.

As a result, fluctuations in currency exchange

rates may have a significant effect on our gross margin.

As a result, fluctuations in currency exchange rates may have a significant effect on our gross margin.

Operating Expenses

We have experienced, and expect to continue to experience, growth in the absolute dollar amount of our operating expenses, as we invest to support the anticipated growth of our customer base and

the continued development of proprietary technologies.

We have experienced, and expect to continue to experience, growth in the absolute dollar amount of our operating expenses, as we invest to support the anticipated growth of our customer base and the continued development of proprietary technologies.

Sales and Marketing

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• cost of trade shows;

costs of tools built for promotional purposes for current or potential new customers;

• cost of promotional tools to new potential customers;

• travel and entertainment;

1 unchanged sentence

Sales and marketing expense can be significant and may fluctuate, in part because of the resource-intensive nature of our sales efforts and the length and variability of our sales cycle.

length of our sales cycle, from initial contact with a customer to the execution of a purchase order, is generally 6 to 24 months.

During the sales cycle, we expend significant time and money on sales and marketing activities, including educating customers about our tools, participating in extended tool evaluations and

configuring our tools to customer-specific needs.

Sales and marketing expense in a given period can be particularly affected by the increase in travel and entertainment expenses associated with the finalization of purchase orders or the

installation of tools.

The length of our sales cycle, from initial contact with a customer to the execution of a purchase order, is generally 6 to 24 months.

During the sales cycle, we expend significant time and money on sales and marketing activities, including educating customers about our tools, participating in extended tool evaluations and configuring our tools to customer-specific needs.

Sales and marketing expense in a given period can be particularly affected by the increase in travel and entertainment expenses associated with the finalization of purchase orders or the installation of tools.

Research and Development

Research and development expense relates to the development of new products and processes and encompasses our research, development and customer support activities.

Research and development

expense consists primarily of:

Research and development expense consists primarily of:

• compensation of personnel associated with our research and development activities, including stock-based compensation;

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• allocated overhead for rent and utilities.

Some of our research and development has been funded by grants from the PRC government, as described in “—PRC Government Research and Development Funding” below.

Some of our research and development has been funded by grants from the mainland China government, as described in “—mainland China Government Research and Development Funding” below.

General and Administrative

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Stock-Based Compensation Expense

We grant stock options to employees and non-employee consultants and directors, and we account for those stock-based awards in accordance with ASC Topic 718, Compensation—Stock

Compensation .

Stock-based awards granted to employees and non-employees are measured at the fair value of the awards on the grant date and are recognized as expenses either (a) immediately on grant, if no vesting conditions

are required, or (b) using the graded vesting method, net of estimated forfeitures, over the requisite service period.

The fair value of stock options is determined using the Black-Scholes valuation model.

Stock-based compensation

expense, when recognized, is charged to cost of revenue or to the category of operating expense corresponding to the service function of the employee or non-employee.

We also grant discounts to employees when they subscribe for the new shares of ACM Shanghai, and we account for those stock-based awards in accordance with Accounting Standards Codification, or ASC, Topic 718,

Compensation—Stock Compensation

PRC Government Research and Development Funding

We grant stock options to employees and non-employee consultants and directors, and we account for those stock-based awards in accordance with ASC Topic 718, Compensation—Stock Compensation .

• Stock-based awards granted to employees and non-employees are measured at the fair value of the awards on the grant date and are recognized as expenses either (a) immediately on grant, if no vesting conditions are required, or (b) using the graded vesting method, net of estimated forfeitures, over the requisite service period.

The fair value of stock options is determined using the Black-Scholes valuation model when there are service and performance condition attached, or the Monte Carlo valuation model when there is market condition attached.

Stock-based compensation expense, when recognized, is charged to cost of revenue or to the category of operating expense corresponding to the service function of the employee or non-employee.

• We also grant discounts to employee s when they subscribe for the new shares o f ACM Shanghai, and we account for those stock-based awards in accordance with Accounting Standards Codification, or ASC, Topic 718, Compensation—Stock Compensation

Mainland China Government Research and Development Funding

ACM Shanghai has received seven special government grants.

The first grant, which was awarded in 2008, relates to the development and commercialization of 65nm to 45nm stress-free polishing

The first grant, which was awarded in 2008, relates to the development and commercialization of 65nm to 45nm stress-free polishing technology.

The second grant was awarded in 2009 to fund interest expense on short-term borrowings.

The third grant was made in 2014 and relates to the development of electro copper-plating technology.

The fourth grant was made in June 2018 and

related to development of polytetrafluoroethylene.

The fourth grant was made in June 2018 and related to development of polytetrafluoroethylene.

The fifth grant was made in 2020, and relates to the development of Tahoe single bench cleaning technologies.

As of December 31, 2021, the fourth and fifth grants had been fully utilized.

sixth grant was made in 2020, and relates to the development of other cleaning technologies.

The sixth grant was made in 2020, and relates to the development of other cleaning technologies.

The seventh grant was made in 2021, and relates to the development of the R&D and production center in the Lin-gang Special Area of Shanghai.

governmental authorities provide significant funding, although ACM Shanghai and ACM Shengwei is also required to invest certain amounts in the projects.

These governmental authorities provide significant funding, although ACM Shanghai and ACM Shengwei is also required to invest certain amounts in the projects.

The governmental grants contain certain operating conditions, and we are required to go through a government due diligence process once the project is complete.

The grants therefore are recorded

as long-term liabilities upon receipt, although we are not required to return any funds ACM Shanghai receives.

Grant amounts are recognized in our statements of operations and comprehensive income (loss) as follows:

The grants therefore are recorded as long-term liabilities upon receipt,

although we are not required to return any funds ACM Shanghai receives.

Grant amounts are recognized in our statements of comprehensive income (loss) as follows:

• Government subsidies relating to current expenses are recorded as reductions of those expenses in the periods in which the current expenses are recorded.

For the years ended December 31, 2022, 2021 and 2020,

related government subsidies recognized as reductions of relevant expenses in the consolidated statements of operations and comprehensive income (loss) were $1.2 million, $11.3 million, and $2.7 million, respectively.

For the years ended December 31, 2023, 2022, and 2021, related government subsidies recognized as reductions of relevant expenses in the consolidated statements of comprehensive income (loss) we re $1.7 million, $1.2 million, and $11.3 million, respectively.

• Government subsidies related to depreciable assets are credited to income over the useful lives of the related assets for which the grant was received.

For the years ended December 31, 2022, 2021 and 2020,

related government subsidies recognized as other income in the consolidated statements of operations and comprehensive income (loss) were $0.3 million, $0.2 million, and $0.1 million, respectively.

Unearned government subsidies received are deferred for recognition and recorded as other long-term liabilities (see note 13 in the Notes to Consolidated Financial Statements included herein under

For the years ended December 31, 2023, 2022, and 2021, related government subsidies recognized as other income in the consolidated statements of comprehensive income (loss) were $0.5 million, $0.3 million, and $0.2 million, respectively.

Unearned government subsidies received are deferred for recognition and recorded as other long-term liabilities (see note 13 in the Notes to Consolidated Financial Statements included herein under “Item 8.

Financial Statements and Supplementary Data.”) in the consolidated balance sheet until the criteria for such recognition are satisfied.

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In 2021 ACM Shanghai sold a total number shares representing an additional 10% of its outstanding ACM Shanghai shares in its STAR IPO, after which ACM Research held the remaining 82.5% of ACM Shanghai’s outstanding shares.

As a result, we

reflect the portion of our net income allocable to the minority holders of ACM Shanghai shares as net income attributable to non-controlling interests.

During the year-ended December 31,2023, ACM's ownership declined to 82.1 % due to the exercise of 2,150,309 stock options related to ACM Shanghai shares (note 18).

As a result, we reflect the portion of our net income allocable to the minority holders of ACM Shanghai shares as net income attributable to non-controlling interests.

Critical Accounting Policies and Estimates

In preparing our consolidated financial statements in conformity with GAAP, we make assumptions, judgments and estimates in applying our accounting policies that can have a significant impact on

our revenue, operating income and net income, as well as on the value of certain assets and liabilities on our consolidated balance sheets.

We base our assumptions, judgments and estimates on historical experience and various other factors that

we believe to be reasonable under the circumstances.

In preparing our consolidated financial statements in conformity with GAAP, we make assumptions, judgments and estimates in applying our accounting policies that can have a significant impact on our revenue, operating income and net income, as well as on the value of certain assets and liabilities on our consolidated balance sheets.

We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances.

At least quarterly, we evaluate our assumptions, judgments and estimates and make changes as deemed necessary.

Actual results could differ materially from these estimates under different

assumptions or conditions.

We believe that the assumptions, judgments and estimates involved in the accounting for the following accounting policies have the greatest potential impact on our consolidated financial

statements, and we therefore consider these to be our critical accounting estimates.

Actual results could differ materially from these estimates under different assumptions or conditions.

We believe that the assumptions, judgments and estimates involved in the accounting for the following accounting policies have the greatest potential impact on our consolidated financial statements, and we therefore consider these to be our critical accounting estimates.

For information on our significant accounting policies, see Note 2 in the notes to consolidated financial statements.

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Allocate the transaction price to the performance obligations in the contract;

Recognize revenue when (or as) the entity satisfies a performance obligation.

A contract contains a promise (or promises) to transfer goods or services to a customer.

A performance obligation is a promise (or a group of promises) that is distinct.

The transaction price is the amount of

consideration a company expects to be entitled from a customer in exchange for providing the goods or services.

The unit of account for revenue recognition is a performance obligation (a good or service).

A contract may contain one or more performance obligations.

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.

Otherwise, performance obligations are combined with other promised goods or services until we identify a bundle of goods or services that is distinct.

Promises in contracts which do not result in the

transfer of a good or service are not performance obligations, as well as those promises that are administrative in nature, or are immaterial in the context of the contract.

We have addressed whether various goods and services promised to the

customer represent distinct performance obligations.

We applied the guidance of ASC Topic 606 in order to verify which promises should be assessed for classification as distinct performance obligations.

Our performance obligations in

connection with a sale of equipment generally include production, delivery, installation, training and software updates.

Given that our products are customized based on specifications of our customers, we determine that the promise to the customer is to provide a customized product solution.

The product and

customization services are inputs into the combined item for which the customer has contracted and, as a result, the product and installation services are not separately identifiable and are combined into a single performance obligation.

Delivery of goods to a customer is not a separate performance obligation since control of the goods normally does not transfer to the customer before shipment.

Our warranties provide assurance that our products will function as expected and

in accordance with certain specifications.

Our 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 accounted

for under ASC 460, Guarantees .

Production, delivery, installation, training and software updates, are a single unit of accounting.

The transaction price is allocated to all the separate performance obligations in an arrangement.

It reflects the amount of consideration to which we expect to be entitled in exchange for

transferring goods or services, which may include an estimate of variable consideration to the extent that it is probable of not being subject to significant reversals in the future based on our experience with similar arrangements.

transaction price excludes amounts collected on behalf of third parties, such as sales taxes.

This is done on a relative selling price basis using standalone selling prices, or SSP.

The SSP represents the price at which we would sell that

good or service on a standalone basis at the inception of the contract.

Given the requirement for establishing SSP for all performance obligations, if the SSP is directly observable through standalone sales, then such sales should be

considered in the establishment of the SSP for the performance obligation.

For some sale contracts, in addition to the sale of semiconductor capital equipment, we also provide certain spare parts to the customers.

We defer revenue associated with spare parts sold

together with our tool products, including production, delivery, installation, training, and software updates which are accounted for as one performance obligation, based on stand-alone observable selling prices for which we receive payments

in advance and recognize the revenue upon the subsequent shipment of the spare parts, which is expected within one year.

The deferred revenue for spare parts was $4.2 million and $3.2 million at December 31, 2022 and 2021, respectively.

Revenue is recognized when we satisfy each performance obligation by transferring control of the promised goods or services to the customer.

Goods or services can transfer at a point in time

(upon the acceptance of the products or upon the arrival at the destination as stipulated in the shipment terms) in a sale arrangement.

In general, we recognize revenue when a tool has been demonstrated to meet the customer’s predetermined

specifications and is accepted by the customer.

In the following circumstances, however, we recognize revenue upon shipment or delivery, when legal title to the tool is passed to a customer as follows:

When the customer has previously accepted the same tool with the same specifications and we can objectively demonstrate that the tool meets all of the required acceptance criteria;

When the sales contract or purchase order contains no acceptance agreement and we can objectively demonstrate that the tool meets all of the required acceptance criteria;

When our sales arrangements do not include a general right of return.

We offer maintenance services, which consist principally of the installation and replacement of parts and small-scale modifications to the equipment.

The related revenue and costs of revenue are

recognized when parts have been delivered and installed and the customers have obtained control of the parts.

We incur costs related to the acquisition of our contracts with customers in the form of sales commissions.

Sales commissions are paid to third party representatives and distributors.

Contractual agreements with these parties outline commission structures and rates to be paid.

Generally speaking, the contracts are all individual procurement decisions by the customers and are not for significant periods of time, nor do they

include renewal provisions.

As such, all contracts have an economic life of significantly less than a year.

Accordingly, we expense sales commissions when incurred.

These costs are recorded within sales and marketing expenses.

We, therefore,

do not have contract assets.

We do not incur any costs to fulfill the contracts with customers that are not already reported in compliance with another applicable standard (for example, inventory or plant, property and

We receive payments from customers prior to the transfer of control either upon contract sign-off and/or the delivery of evaluation tools, which are recorded as advances from customers.

Recognize revenue when, or as, a performance obligation is satisfied.

Identify the contract(s) with a customer.

We generally consider 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 our 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.

Our 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 our contracts with customers may include fixed and variable consideration.

We include 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 our historical experience with similar arrangements.

Allocate the transaction price to the performance obligations in the contract.

For contracts that contain multiple performance obligations, we allocate the transaction price to the performance obligations on a relative standalone selling price basis.

We defer 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.

We recognize revenue from tools and spare parts at a point in time, when we have satisfied our performance obligation.

Our 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 in the past, or 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 we can objectively demonstrate that the goods meet all the required customer specifications.

Stock-based compensation

We account for grants of stock options based on their grant date fair value and recognize compensation expense over the vesting periods.

We estimate the fair value of the stock options granted

with a service period-based condition at the date of grant using the Black-Scholes option pricing model.

We estimate the fair value of the stock options granted with a market-based condition at the date of grant using the Monte Carlo simulation

For options granted with a service period-based condition, stock-based compensation expense represents the cost of the grant date fair value of employee stock option grants recognized over the

requisite service period of the awards (usually the vesting period) on a straight-line basis, net of estimated forfeitures.

We estimate the fair value of these stock option grants using the Black-Scholes option pricing model, which requires the

input of subjective assumptions, including (a) the risk-free interest rate, (b) the expected volatility of our stock, (c) the expected term of the award and (d) the expected dividend yield.

We estimate the fair value of the stock options granted with a service period-based condition and/or performance condition at the date of grant using the Black-Scholes option pricing model.

We estimate the fair value of the stock options granted with a market-based condition at the date of grant using the Monte Carlo simulation model.

For options granted with a service period-based and/or performance condition, we estimate the fair value of these stock option grants using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including (a)Fair value of share of common stock, (b)the risk-free interest rate, (c) volatility, and (d) the expected term of the award.

• We use the market closing price for the Class A common stock as reported on the Nasdaq Global Market to determine the fair value of the Class A common stock.

The risk-free interest rates for periods within the expected life of the option are based on the yields of zero-coupon U.S.

Treasury securities.

Due to a lack of company-specific historical and implied volatility data, we have based our estimate of expected volatility on the historical volatility of a group of similar companies that are publicly

For these analyses, we have selected companies with comparable characteristics to ours including enterprise value, risk profile, position within the industry, and with historical share price information sufficient to meet the

expected life of the stock-based awards.

We compute the historical volatility data using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of our stock-based awards.

We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.

The expected term represents the period of time that options are expected to be outstanding.

The expected term of stock options is based on the average between the vesting period and the contractual term for

each grant according to Staff Accounting Bulletin No.

The expected dividend yield is assumed to be 0%, based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends.

We use the market closing price for the ACM Shanghai’s common stock as reported on the STAR Market to determine the fair value of ACM Shanghai’s common stock.

• For options granted by ACM Research, risk-free interest rate is based on the yields of U.S.

Treasury securities with maturities similar to the expected term of the share options in effect at the time of grant.

For options granted by ACM Shanghai, risk-free interest rate is based on the yields of RMB deposit in mainland China with maturities similar to the expected term of the share options in effect at the time of grant.

• We use historical volatility of our shares in the period equal to the expected term of each grant.

• The expected term of share options is based on the average of the vesting period and the contractual term for each grant.

Inventories consist of finished goods, raw materials, work-in-process and consumable materials.

Finished goods are comprised of direct materials, direct labor, depreciation and manufacturing

Inventory is stated at the lower of cost and net realizable value of the inventory at December 31, 2022 and 2021.

The cost of a general inventory item is determined using the weighted average method.

The cost of an inventory item

purchased specifically for a customized tool is determined using the specific identification method.

Market value is determined as the lower of replacement cost and net realizable value, which is the estimated selling price, in the ordinary

course of business, less estimated costs to complete or dispose.

Finished goods are comprised of direct materials, direct labor, depreciation and manufacturing overhead.

Inventory is stated at the lower of cost and net realizable value of the inventory on a moving weighted average basis.

The cost of an inventory item purchased specifically for a customized tool is determined using the specific identification method.

Market value is determined as the lower of replacement cost and net realizable value, which is the estimated selling price, in the ordinary course of business, less estimated costs to complete or dispose.

We assess the recoverability of all inventories quarterly to determine if any adjustments are required.

We write down excess or obsolete tool-related inventory based on management’s analysis of

inventory levels and forecasted 12-month demand and technological obsolescence and spare parts inventory based on forecasted usage.

These factors are affected by market and economic conditions, technology changes, new product introductions

and changes in strategic direction, and they require estimates that may include uncertain elements.

We recognize a loss or impairment if in our judgement the inventory cannot be sold or used for production, if it has been damaged or should be considered as obsolete, or if the net realizable value is lower than the cost.

We also assess the status of our raw materials.

We recognize a loss or impairment for any raw materials aged more than three years.

The three-year aging is based on our assessment of technology change, our requirement to maintain stock for warranty coverage, and other factors.

Actual demand may differ from forecasted demand, and those differences may have a material effect on recorded inventory values.

twelve months ended December 31, 2022 and, 2021, inventory write-downs of $2.2 million and $0.1 million were recognized in cost of revenue, respectively.

Our manufacturing overhead standards for product costs are calculated assuming full absorption of forecasted spending over projected volumes, adjusted for excess capacity.

Abnormal inventory costs

such as costs of idle facilities, excess freight and handling costs, and spoilage are recognized as current period charges.

Allowance for Doubtful Accounts

Abnormal inventory costs such as costs of idle facilities, excess freight and handling costs, and spoilage are recognized as current period charges.

Allowance for Credit Losses

Accounts receivables are reflected in our consolidated balance sheets at their estimated collectible amounts.

A substantial majority of our accounts receivable are derived from sales to large

multinational semiconductor manufacturers in Asia.

We follow the allowance method of recognizing uncollectible accounts receivable, pursuant to which we regularly assess our ability to collect outstanding customer invoices and make estimates of

the collectability of accounts receivable.

We provide an allowance for doubtful accounts when we determine that the collection of an outstanding customer receivable is not probable.

The allowance for doubtful accounts is reviewed on a quarterly

basis to assess the adequacy of the allowance.

We take into consideration (a) accounts receivable and historical bad debts experience, (b) any circumstances of which we are aware of a customer’s inability to meet its financial obligations, (c)

changes in our customer payment history, and (d) our judgments as to prevailing economic conditions in the industry and the impact of those conditions on our customers.

If circumstances change, such that the financial conditions of our

customers are adversely affected and they are unable to meet their financial obligations to us, we may need to record additional allowances, which would result in a reduction of our net income.

No allowance for doubtful accounts was considered

necessary at December 31, 2022 or 2021.

Valuation of Long-Lived Assets

Long-lived assets are evaluated for impairment whenever events or changes in circumstance indicate that the carrying value of an asset may not be fully recoverable or that the useful life is

shorter than we had originally estimated.

When these events or changes occur, we evaluate the impairment of the long-lived assets by comparing the carrying value of the assets to an estimate of future undiscounted cash flows expected to be

generated from the use of the assets and their eventual disposition.

If the sum of the expected future undiscounted cash flow is less than the carrying value of the assets, we recognize an impairment loss based on the excess of the carrying

value over the fair value.

No impairment charge was recognized in 2022 and 2021.

A substantial majority of our accounts receivable are derived from sales to large multinational semiconductor manufacturers in Asia.

We assess collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when we identify specific customers with known disputes or collectability issues.

In determining the amount of the allowance for credit losses, we consider historical collectability based on past due status, the age of the accounts receivable balances, credit quality of our customers based on ongoing credit evaluations, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect our ability to collect from customers.

Income taxes are accounted for using the liability method.

Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary

differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income

in the years in which these temporary differences are expected to be recovered or settled.

Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

valuation allowance would be provided for the deferred tax assets if it is more likely than not that the related benefit will not be realized.

A valuation allowance would be provided for the deferred tax assets if it is more likely than not that the related benefit will not be realized.

On a quarterly basis, we provide income tax provisions based upon an estimated annual effective income tax rate.

The effective tax rate is highly dependent upon the geographic composition of

worldwide earnings, tax regulations governing each region, availability of tax credits and the effectiveness of our tax planning strategies.

We carefully monitor the changes in many factors and adjust our effective income tax rate on a timely

The effective tax rate is highly dependent upon the geographic composition of worldwide earnings, tax regulations governing each region, availability of tax credits and the effectiveness of our tax planning strategies.

We carefully monitor the changes in many factors and adjust our effective income tax rate on a timely basis.

If actual results differ from these estimates, this could have a material effect on our financial condition and results of operations.

We maintained a partial valuation allowance as of December 31, 2023 with respect to certain net deferred tax assets based on our estimates of recoverability.

We determined that the partial

valuation allowance was appropriate given our historical operating losses and uncertainty with respect to our ability to generate profits from our business model sufficient to take advantage of the deferred tax assets in all applicable tax

jurisdictions.

We determined that the partial valuation allowance was appropriate given our historical operating losses and uncertainty with respect to our ability to generate profits from our business model sufficient to take advantage of the deferred tax assets in all applicable tax jurisdictions.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations.

In accordance with the authoritative guidance on accounting for

uncertainty in income taxes, we recognize liabilities for uncertain tax positions based on the two-step process.

The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it

is more likely than not that the position will be sustained in audit, including resolution of related appeals or litigation processes, if any.

The second step is to measure the tax benefit as the largest amount that is more than fifty percent

likely of being realized upon ultimate settlement.

In accordance with the authoritative guidance on accounting for uncertainty in income taxes, we recognize liabilities for uncertain tax positions based on the two-step process.

The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained in audit, including resolution of related appeals or litigation processes, if any.

The second step is to measure the tax benefit as the largest amount that is more than fifty percent likely of being realized upon ultimate settlement.

We reevaluate these uncertain tax positions on a quarterly basis.

This evaluation is based on factors including changes in facts or circumstances, changes in tax law, effectively settled issues

under audit and new audit activity.

This evaluation is based on factors including changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity.

Any change in these factors could result in the recognition of a tax benefit or an additional charge to the tax provision.

Interest and penalties related to uncertain tax positions are recorded in the provision for income tax expense on the consolidated statements of operations.

Interest and penalties related to uncertain tax positions are recorded in the provision for income tax expense on the consolidated statements of comprehensive income (loss).

We have provided standard assurance type warranty coverage on our tools for 12 to 36 months, covering labor and parts necessary to repair a tool during the warranty period.

We account for the

estimated warranty cost as sales and marketing expense at the time revenue is recognized.

Warranty obligations are affected by historical failure rates and associated replacement costs.

Utilizing historical warranty cost records, we calculate a

rate of warranty expenses to revenue to determine the estimated warranty charge.

Utilizing historical warranty cost records, we calculate a rate of warranty expenses to revenue to determine the estimated warranty charge.

We update these estimated charges on a regular basis.

The actual product performance and field expense profiles may differ, and in those cases, we adjust our

warranty accruals accordingly.

The actual product performance and field expense profiles may differ, and in those cases, we adjust our warranty accruals according ly.

As of December 31, 2023 and 2022, we had accrued $9.8 million and $8.8 million, respectively, in liability contingency for potential warranty claims.

Financial Liability Carried at Fair Value

As described in note 15 in the Notes to Consolidated Financial Statements, in preparation for the STAR IPO we entered into two agreements with Shengxin (Shanghai) Management Consulting Limited

Partnership, or SMC, relating to outstanding obligations for which we had agreed to deliver certain consideration.

We accounted for this consideration as a financial liability and applied fair value option methodology to measure the

consideration in accordance with ASC, Financial Instruments , (i.e., ASC 825-10-15-4a).

On July 29, 2020 we entered into an amended agreement with SMC under which, in settlement of the financial

liability, we issued to SMC a warrant to purchase shares of Class A common stock.

The financial liability was remeasured to fair value as of July 29, 2020 and was retired upon issuance of the warrant.

The warrant was initially measured at fair

value at the issuance date and classified as permanent equity in accordance with ASC Topic 815, Derivatives and Hedging .

Estimates related to this item required significant judgment, and a change in the

estimates could have a material effect on our results of operations during the periods involved.

Recent Accounting Pronouncements

2 unchanged sentences

Results of Operations

The following table sets forth our results of operations for the periods presented, as percentages of revenue.

The following table sets forth our results of operations for the peri ods presented, as percentages of revenue.

Year Ended December 31,

2023 2022 2021

Revenue 100.0 % 100.0 % 100.0 %

Cost of revenue 50.5 52.8 55.8

Gross margin 49.5 47.2 44.2

Operating expenses:

5 unchanged sentences

Interest income (expense), net 1.0 1.8 (0.1)

Change in fair value of financial liability

Realized gain from sale of trading securities

Unrealized gain (loss) on trading securities

Realized gain from sale of short-term investments 1.6 0.3 -

Unrealized gain (loss) on short-term investments (0.5) (2.0) 0.2

Other income (expense), net (0.3) 0.9 (0.2)

Equity income in net income of affiliates

Income from equity method investments 1.8 1.2 1.8

Income before income taxes 20.8 17.4 16.5

Income tax benefit (expense)

Income tax expense

(3.5) (4.3) (0.1)

Net income 17.3 13.0 16.4

Net income attributable to non-controlling interests 3.5 2.9 2.0

Net income attributable to ACM Research, Inc.

13.8 % 10.1 % 14.4 %

Comparison of Years Ended December 31, 2023, 2022, and 2021

Year Ended December 31,

2023 2022 2021 % Change

2023 v 2022 % Change

(in thousands)

3 unchanged sentences

Total Revenue By Product Category $ 557,723 $ 388,832 $ 259,751 43.4 % 49.7 %

Wet-cleaning and other front-end processing tools

Advanced packaging, other processing tools, services and spares

Total Revenue Front-end and Back-End

Year Ended December 31,

2023 2022 2021

(in thousands)

Mainland China $ 540,969 $ 377,752 $ 258,615

Other Regions 16,754 11,080 1,136

The increase in revenue for 2022 compared to 2021 was driven primarily by higher sales of single wafer cleaning, Tahoe and semi-critical cleaning equipment, and increased contribution from newer

ECP (front-end and packaging), furnace and other technologies.

Our Shanghai production operations were adversely impacted in the first half of the year due to COVID-19-related restrictions, with a return to more normal operations in the second

half of the year.

$ 557,723 $ 388,832 $ 259,751

The increase in revenue for 2023 compared to 2022 was driven by higher sales of single wafer cleaning, Tahoe and semi-critical cleaning equipment, ECP (front-end and packaging), furnace and other technologies, and Advance packaging (excluding ECP), and services and spares.

We attribute the revenue growth to continued investments in mature process nodes by current and new mainland China-based customers amidst an ongoing target to achieve a greater share of the global semiconductor market, incremental contribution from newly introduced tools, and better penetration of our product portfolio across our customer base.

The increase in revenue for 2022 compared to 2021 was driven primarily by higher sales of single wafer cleaning, Tahoe and semi-critical cleaning equipment, and increased contribution from newer ECP (front-end and packaging), furnace and other technologies.

Our Shanghai production operations were adversely impacted in the first half of 2022 to COVID-19-related restrictions, with a return to more normal operations in the second half of the year.

export regulations imposed in October of 2022 had an adverse impact on ACM Shanghai’s shipments and sales in the fourth quarter of 2022.

The increase in revenue for 2021 compared to 2020 was driven by higher sales of single wafer cleaning, Tahoe and semi-critical cleaning equipment, increased contribution from newer ECP (front-end

and packaging), furnace and other technologies, and higher sales of Advanced packaging, services and spares.

The increased demand from PRC-based customers is due in part to their longer-term commitment to increase production capacity to achieve

a greater share of the mainland China semiconductor market.

Cost of Revenue and Gross Margin

Year Ended December 31,

2023 2022 2021 % Change

2023 v 2022 % Change

(in thousands)

Cost of revenue $ 281,508 $ 205,217 $ 144,895 37.2 % 41.6 %

Gross profit 276,215 183,615 114,856 50.4 % 59.9 %

Gross margin 49.5 % 47.2 % 44.2 % 2.30 3.00

Cost of revenue and gross profit increased in 2023 as compared to 2022 due to the increased sales volume and an increase in gross margin.

The increased gross margin versus the prior-year period

was primarily due to a higher mix of ECP (front-end and packaging), furnace, and other technologies, and a positive impact due to a change in the RMB to U.S.

The increased gross margin versus the prior-year period was primarily due to improved gross margins for certain products, overall product mix , and a positive impact due to a change in the RMB to U.S.

dollar currency exchange rate.

Cost of revenue and gross profit increased in 2021 compared to 2020, reflecting the growth in sales.

Gross margin decreased by 22 basis points, primarily due to differences in product mix in 2021

Cost of revenue and gross profit increased in 2022 as compared to 2021 due to the increased sales volume and an increase in gross margin.

The increased gross margin versus the prior-year period was primarily due to a higher mix of ECP (front-

end and packaging), furnace, and other technologies, and a positive impact due to a change in the RMB to U.S.

dollar currency exchange rate.

Gross margin may vary from period to period, primarily related to the level of utilization and the timing and mix of revenue.

We expect gross margin to be between 40.0% and 45.0% for the

foreseeable future, with direct manufacturing costs approximating 50.0% to 55.0% of revenue and overhead costs totaling 5.0% of revenue.

We expect gross margin to be between 40.0% and 45.0% for the foreseeable future, with direct manufacturing costs approximating 50.0% to 55.0% of revenue and overhead costs totaling 5.0% of revenue.

Operating Expenses

Year Ended December 31,

2023 2022 2021 % Change

2023 v 2022 % Change

(in thousands)

3 unchanged sentences

Total operating expenses $ 180,376 $ 124,580 $ 76,154 44.8 % 63.6 %

Sales and marketing expense increased in 2022 as

compared to 2021, and reflected an increase of $7.9 million due to higher costs of tools built for promotional purposes for current or potential new customers, and an increase of $5.3 million due to increased costs for personnel, commissions,

outside services, travel and entertainment and other costs.

Sales and marketing expense increased in 2021 as compared to 2020, primarily due to an increase in services costs including travel and warranty support, employee payroll and benefits,

stock-based compensation, and sales commissions.

We expect that, for the foreseeable future, sales and marketing expense will increase in absolute dollars, as we continue to invest in sales and marketing by hiring additional employees and

expanding marketing programs in existing or new markets.

Sales and marketing expense increased in 2023 as compared to 2022, and reflected an increase of $8.1 million due to higher costs for personnel, commissions, travel and entertainment and other costs, an increase of $4.7 million due to higher costs for professional services, outside services and other costs, and an increase of $3.8 million due to higher stock -based compensation, partly offset by a decrease of ($9.6 million) for the cost of tools built for promotional purposes.

Sales and marketing expense increased in 2022 as compared to 2021, and reflected an increase of $7.9 million due to higher costs of tools built for promotional purposes for potential new customers, and an increase of $5.3 million due to increased costs for personnel, commissions, outside services, travel and entertainment and other costs.

We expect that, for the foreseeable future, sales and marketing expense will increase in absolute dollars, as we continue to invest in sales and marketing by hiring additional employees and expanding marketing programs in existing or new markets.

We must invest in sales and marketing processes in order to develop and maintain close relationships with customers.

We are making dollar-based investments in order to support growth of

our customer base in the United States, and the relative strength of the dollar could have a significant effect on our sales and marketing expense.

Research and development expense increased in 2022 as compared to 2021, reflecting an increase of $6.9 million in costs of components, costs of tools built

for product development purposes, and costs of other research and development supplies, and an increase of $16.7 million for personnel, stock-based compensation, and travel and entertainment costs to support product development, and an increase

of $4.4 million for outside services and other research and development related expenses.

We are making dollar-based investments in order to support growth of our customer base in the United States, and the relative strength of the dollar could have a significant effect on our sales and marketing expense.

Research and development expense increased in 2023 as compared to 2022, reflecting an increase of $15.4 million in costs of components, costs of tools built for product development purposes, and costs of other research and development supplies, an increase of $7.1 million for personnel-related costs, an increase of $5.9 million in stock-based compensation, and an increase of $4.2 million in travel and entertainment costs to support product development, professional services, and other research and development related expenses, offset by a decrease of ($2.1 million) for outside services.

Research and development expense represented 16.6% and 16.0% of our revenue in the years ended December 31, 2023 and 2022, respectively.

reduction by grant amounts received from PRC governmental authorities (see “—PRC Government Research and Development Funding”), gross research and development expense totaled $63.4million, or 16.3% of total revenue, in the year ended December

31, 2022 as compared to $45.5 million, or 17.5% of revenue, in the corresponding period in 2021.

Research and development expense increased in 2021 as compared to 2020, primarily due to an increase in employee payroll and benefits, cost of

components and other research and development supplies, travel, and other related expenses.

Research and development expense represented 13.2% and 12.2% of our revenue in 2021 and 2020, respectively.

Without reduction by grant amounts received

from PRC governmental authorities (see “—Key Components of Results of Operations—PRC Government Research and Development Funding”), gross research and development expense totaled $45.5 million, or 17.5% of revenue, in 2021 and $21.2 million, or

13.6% of revenue, in 2020.

We expect that, for the foreseeable future, research and development expense will increase in absolute dollars as compared to 2022, as we continue to invest in research and development to advance

our technologies.

Without reduction by grant amounts received from mainland China governmental authorities (see “—mainland China Government Research and Development Funding”), gross research and development expense totaled $94.5 million, or 16.9% of total revenue, in the year ended December 31, 2023 as compared to $63.4 million, or 16.3% of revenue, in the corresponding period in 2022.

Research and development expense increased in 2022 as compared to 2021, reflecting an increase of $6.9 million in costs of components, costs of tools built for product development purposes, and costs of other research and development supplies, and an increase of $16.7 million for personnel, stock-based compensation, and travel and entertainment costs to support product development, and an increase of $4.4 million for outside services and other research and development related expenses.

We expect that, for the foreseeable future, research and development expense will increase in absolute dollars as compared to 2023, as we continue to invest in research and development to advance our technologies.

We intend to continue to invest in research and development to support and enhance our cleaning, plating, advanced packaging, furnace and future product offerings to build and maintain our technology leadership position.

General and administrative expense increased in 2022 as compared to 2021, primarily due to an increase in stock-based compensation, increased employee

count, and an increase in legal, payroll tax and other fees.

General and administrative expense increased for 2021 as compared to 2020, primarily due to increased employee payroll and benefits, and an increase in legal, payroll tax and other fees.

We expect that, for the foreseeable future, general and administrative expense will increase in absolute dollars, as we incur additional costs associated with growing our business and operating as

a public company.

General and administrative expense increased in 2023 as compared to 2022, reflecting an increase of $9.0 million in stock-based compensation, $3.3 million in personnel and professional services costs, $2.7 million in allowance for credit losses, and $3.1 million for travel & entertainment, depreciation and amortization, outside services, taxes and other general and administrative expenses.

General and administrative expense increased in 2022 as compared to 2021, primarily due to an increase in stock-based compensation, increased employee count, and an increase in legal, payroll tax and other fees.

We expect that, for the foreseeable future, general and administrative expense will increase in absolute dollars, as we incur additional costs associated with growing our business and operating as a public company.

Stock-Based Compensation Expense

1 unchanged sentence

Year Ended December 31,

2023 2022 2021

(in thousands)

Stock-Based Compensation Expense:

3 unchanged sentences

General and administrative expense 11,789 2,768 1,803

We recognized stock-based compensation expense of $7.7 million in 2022, $5.1 million in 2021, and $5.6 million in 2020.

As of December 31, 2022 and 2021, we had $16.0 million and $9.5 million, respectively, of unrecognized employee stock-based compensation expense, net of estimated forfeitures, related to unvested

ACM stock-based awards.

These are expected to be recognized over a weighted-average period of 1.53 years and 1.61 years, respectively.

As of December 31, 2022 and 2021, we had an additional $0.2 million and $0.5 million, respectively of

unrecognized employee stock-based compensation expense, net of estimated forfeitures, related to unvested ACM Shanghai stock-based awards.

Income from Operations

Year Ended December 31,

(in thousands)

Income from operations

Income from operations increased in 2022 as compared to 2021, due to a $68.8 million increase in gross profit, partly offset by a $48.4 million increase in operating expenses.

operations increased by $17.2 million during the year ended December 31, 2021 as compared to 2021, due to a $45.3 million increase in gross profit, partly offset by a $28.0 million increase in operating expense.

$ 27,338 $ 7,730 $ 5,117

Interest income (expense), net, Other Income (expense), net

Year Ended December 31,

2023 2022 2021 % Change

2023 v 2022 % Change

(in thousands)

3 unchanged sentences

Other income (expense), net $ (1,558) $ 3,315 $ (631) -147.0 % -625.4 %

Interest income (expense), net consists of interest earned on our cash and equivalents, restricted cash accounts, and short term and long-term time deposits, offset by interest expense incurred

from outstanding short-term and long-term borrowings.

The significant change from the year-ago-period resulted from a much higher balance of cash and equivalents and time deposits together with higher interest rates on these balances, partly

offset by a higher balance of short-term and long-term borrowings.

Interest income (expense), net, decreased in 2021 compared to 2020, principally as a result of reduced interest income from lower interest rates on reduced cash balances, partly offset by reduced

interest expenses incurred from short-term and long-term bank loans.

Other income (expense), net primarily reflects (a) gains or losses recognized from the impact of exchange rates on our foreign currency-denominated working-capital transactions and (b)

depreciation of assets acquired with government subsidies, as described under “—Government Research and Development Funding” above.

We realized $3.3 million of other income (expense) in the year ended December 31, 2022, of which $1.7 million

was due to gains realized from transactions that resulted from changes in the RMB-to-U.S.

Interest income (expense), net, decreased in 2023 compared to 2022, principally as a result of reduced interest income from lower interest income on reduced cash balances, offset by increase in interest expenses incurred from a higher balance of total bank loans.

Interest income (expense), net, increased in 2022 compared to 2021, principally as a result of reduced interest income from lower interest rates on reduced cash balances, offset by increase in interest expenses incurred from short-term and long-term bank loans.

Other income (expense), net primarily reflects (a) gains or losses recognized from the impact of exchange rates on our foreign currency-denominated working-capital transactions and (b) depreciation of assets acquired with government subsidies, as described under “—Government Research and Development Funding” above.

We realized $1.6 million of other expense in the year ended December 31, 2023, of which $2.0 million was due to loss realized from transactions that resulted from changes in the RMB-to-U.S.

dollar exchange rate, as compared to a foreign exchange gain of 1.7 million in the corresponding period in 2022.

Other income (expense) increased by $3.3 million in the year ended December 31, 2022, of which $1.7 million was due to gains realized from transactions that resulted from changes in the RMB-to-U.S.

dollar exchange rate, as compared to a loss of ($0.6 million) in the corresponding period in 2021.

Our other income (expense), net was ($0.6 million) for the year ended December 31, 2021 due primarily to losses due to the effect of exchange rate fluctuations, and ($3.4 million) for the year

ended December 31, 2020 due primarily to losses due to the effect of exchange rate fluctuations.

Realized gain and unrealized loss from trading securities, and equity income in net income of affiliates.

Realized gain and unrealized loss from short-term investments, and income from equity method investments .

Year Ended December 31,

Absolute Change

2023 2022 2021 % Change

2023 v 2022 % Change

2022 v 2021 Absolute Change

(in thousands)

Change in fair value of financial liability

Realized gain from sale of trading securities

Unrealized gain (loss) on trading securities

Equity income in net income of affiliates

We recorded a realized gain from sale of trading securities of $1.1 million for the year ended December 31, 2022 due to a sale of ACM Shanghai’s indirect investment in SMIC shares on the STAR

Market as is described in note 15 to the consolidated financial statements included in this report.

We recorded an unrealized loss on trading securities of $7.9 million for the year ended December 31, 2022 as compared to an unrealized gain of $0.7 million for the same period in 2021, due

primarily to a change in market value of ACM Shanghai’s indirect investment in SMIC shares on the STAR Market as is described in note 15 to the condensed consolidated financial statements included in this report.

Equity income in net income of affiliates for the year ended December 31, 2022 was unchanged versus the year ended December 31, 2021.

Equity income in net income of affiliates increased by $4.0

million for the year ended December 31, 2021 due to higher net income from investments in affiliates.

Change in fair value of financial liability was nil for 2021 as compared to ($12.0) million for 2020 due to the non-cash, non-operating expense related to transactions as described in note 15.

Income Tax Benefit (Expense)

Realized gain from sale of short-term investments $ 9,047 $ 1,116 $ - 710.7 % 100.0 % $ 7,931

Unrealized gain (loss) on short-term investments $ (2,737) $ (7,855) $ 607 -65.2 % -1394.1 % $ 5,118

Income from equity method investments

$ 9,952 $ 4,666 $ 4,637 113.3 % 0.6 % $ 5,286

We recorded a realized gain on sale of short-term investments of $9.0 million for the year ended December 31, 2023 as compared to a realized gain of $1.1 million for the same period in 2022 primarily due to the sales of ACM Shanghai’s indirect investment in publicly traded shares.

We recorded an unrealized loss on short-term investments of $2.7 million for the year ended December 31, 2023 as compared to an unrealized loss of $7.9 million for the same period in 2022, due primarily to a change in market value of ACM Shanghai’s indirect investment in publicly traded shares.

We recorded an unrealized loss on short-term investments of $7.9 million for the year ended December 31, 2022 as compared to an unrealized gain of $0.7 million for the same period in 2021, due primarily to a change in market value of ACM Shanghai’s indirect investment in publicly traded shares.

Income from equity method investments for the year ended December 31, 2023 increased by $5.3 million compared to the year ended December 31, 2022 primarily due to higher net income from equity method investments.

Income from equity method investments for the year ended December 31, 2022 was unchanged versus the year ended December 31, 2021.

Income from equity method investments increased by $4.0 million for the year ended December 31, 2021 due to higher net income from equity method investments.

Tax Benefit (Expense)

Year Ended December 31,

2023 2022 2021

(in thousands)

federal $ (12,757) $ (479) $ (91)

state (150) (18) (2)

Foreign (19,696) (11,139) (2,195)

Total current tax expense (32,603) (11,636) (2,288)

Total deferred tax benefit

Total income tax benefit (expense)

federal 7,316 (10,927) 2,089

Foreign 5,860 5,757 65

Total deferred tax benefit (expense)

13,239 (5,162) 2,154

Total income tax expense

$ (19,364) $ (16,798) $ (134)

We recognized a tax expense of $19.4 million for the year ended December 31, 2023 as compared to a tax expense of $16.8 million for the prior year period.

The increased tax expense in 2022

primarily resulted from the tax effect of increased operating profit generated and an increase in our effective income tax rate.

The increase in our effective income tax rate for the year ended December 31, 2022 compared to the same period of

the prior year was primarily due to a new requirement to capitalize and amortize previously deductible research and experimental expenses resulting from a change in Section 174 made by the TCJA which became effective on January 1, 2022, and a

decrease in discrete tax benefits associated with stock-based compensation deductions.

The capitalization of overseas R&D expenses resulted in a significant increase in our global intangible low-taxed income inclusion.

considering legislation, but legislation has not passed, that would defer the capitalization requirement to later years.

The increased tax expense in 2023 primarily resulted from the tax effect of increased operating profit generated.

As we collect and prepare necessary data, and interpret the guidance issued by the U.S.

Treasury Department, the Internal Revenue Service, and other standard-setting bodies, we may make

adjustments to the provisional amounts.

Treasury Department, the Internal Revenue Service, and other standard-setting bodies, we may make adjustments to the provisional amounts.

Those adjustments may materially affect our provision for income taxes and effective tax rate in the period in which the adjustments are made.

1 unchanged sentence

Our effective tax rate differs from statutory rates of 21% for U.S.

federal income tax purposes and 12.5% to 25% for PRC income tax purposes due to the effects of the valuation allowance and

certain permanent differences as it pertains to book-tax differences in the treatment of stock-based compensation and non-U.S.

federal income tax purposes and 12.5% to 25% for mainland China income tax purposes due to the effects of the valuation allowance and certain permanent differences as it pertains to book-tax differences in the treatment of stock-based compensation and non-U.S.

research expenses.

Our three PRC subsidiaries, ACM Shanghai, ACM Wuxi, and ACM Shengwei, are liable for PRC corporate

income taxes at the rates of 12.5%, 25%, and 25%, respectively.

Pursuant to the Corporate Income Tax Law of the PRC, our PRC subsidiaries generally would be liable for PRC corporate income taxes at a rate of 25%.

According to Guoshuihan 2009

Our four mainland China subsidiaries, ACM Shanghai, ACM Wuxi, ACM Beijing, and ACM Lingang, are liable for mainland China corporate income taxes at the rates of 15%, 25%, 25%, and 15%, respectively.

Pursuant to the Corporate Income Tax Law of mainland China, our mainland China subsidiaries generally would be liable for mainland China corporate income taxes at a rate of 25%.

According to Guoshuihan 2009 No.

203, an entity certified as an “advanced and new technology enterprise” is entitled to a preferential income tax rate of 15%.

ACM Shanghai was certified as an “advanced and new technology enterprise” in 2012 and again in 2016, 2018, and

2021, with an effective period of three years.

ACM Shanghai was certified as an “advanced and new technology enterprise” in 2012 and again in 2016, 2018, and 2021, effective until December 31, 2023, and is expected to be re-certified for future years in 2024 .

In 2021, ACM Shanghai was certified as an eligible integrated circuit production enterprise and is entitled to a preferential income tax rate of 12.5% from January 1, 2020 to December 31, 2022.

Certain entities which meet requirements according to the Policy of the Lingang New area in China (Shanghai) Pilot Free Trade Zone are entitled to a preferential income tax rate of 15%.

ACM Lingang was certified for this in 2021, and this preferential income tax rate is valid from December 31, 2020 until December 31, 2024.

We file income tax returns in the United States and state and foreign jurisdictions.

Those federal, state and foreign income tax returns are under the statute of limitations subject to tax

examinations for 2000 through 2021.

To the extent we have tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state or foreign tax authorities

to the extent utilized in a future period.

All tax returns will remain open for examination by the federal and state authorities for three and four years, respectively, from the date of utilization of any net operating loss or credits.

Certain tax years are subject to foreign income tax examinations by tax authorities until the statute of limitations expire.

Net Income Attributable to Non-Controlling Interests

Year Ended December 31,

2023 2022 2021 % Change

2023 v 2022 % Change

(in thousands)

Net income attributable to non-controlling interests $ 19,503 $ 11,301 $ 5,164 72.6 % 118.8 %

In 2019 ACM Shanghai sold a total number of shares representing 8.3% of its outstanding ACM Shanghai shares, after which ACM Research held the remaining 91.7% of ACM Shanghai’s outstanding shares.

As a result, we

reflect, the portion of our net income allocable to the minority holders of ACM Shanghai shares as net income attributable to non-controlling interests.

ACM Research owns 82.1% of ACM Shanghai’s (note 1) outstanding shares which is reflected in our consolidated financial statements (note 2).

We reflect the portion of net income allocable to the minority holders of ACM Shanghai shares as net income attributable to non-controlling interests.

Foreign currency translation adjustment

Year Ended December 31,

2023 2022 2021 % Change

2023 v 2022 % Change

(in thousands)

Foreign currency translation adjustment $ (10,617) $ (59,102) $ 4,695 -82.0 % -1358.8 %

We recorded a foreign currency translation adjustment of ($59.1 million) for the year ended December 31, 2022, as compared to $4.7 million for

2021, based on the net effect of RMB to dollar exchange rate fluctuations for the period on the converted value of ACM Shanghai’s RMB-denominated balances to U.S.

dollar equivalents.

The 2022 amount was especially large due to a significant weakening of the RMB versus the U.S.

dollar during the twelve months ended December 31, 2022 together

with a more significant RMB-denominated asset balance in 2022 .

We recorded a foreign currency translation adjustment of $4.7 million for the year ended December 31, 2021, as compared to $10.5 million for 2020, based on the net effect of RMB to dollar exchange

rate fluctuations for the period on the converted value of ACM Shanghai’s RMB-denominated balances to U.S.

We recorded a foreign currency translation adjustment of ($10.6 million) for the year ended December 31, 2023, as compared to $(59.1) million for 2022, based on the net effect of RMB to dollar exchange rate fluctuations for the period on the converted value of ACM Shanghai’s RMB-denominated balances to U.S.

dollar equivalents.

The 2022 amount was especially large due to a weakening of the RMB versus the U.S.

dollar during the period.

dollar during the year ended December 31, 2022 together with a more significant RMB-denominated asset balance in 2022.

Comprehensive income (loss) attributable to non-controlling interests

Year Ended December 31,

2023 2022 2021 % Change

2023 v 2022 % Change

(in thousands)

Comprehensive income (loss) attributable to non-controlling interests $ 17,689 $ 1,854 $ 5,607 854.1 % -66.9 %

Comprehensive income attributable to non-controlling interest decreased by $3.8 and $1.3 million, respectively, for the years ended December 31,

2022 and 2021, due to change in net income generated from the non-controlling interests as impacted from foreign exchange rate fluctuations.

Comprehensive income attributable to non-controlling interest increased by $15.8 million compared to a decrease of $(3.8) million for the years ended December 31, 2023 and 2022 compared to the prior year, due to a significant change in net income generated from the non-controlling interests as impacted from foreign exchange rate fluctuations.

Liquidity and Capital Resources

The following chart depicts our corporate organization as of December 31, 2023:

A detailed description of how cash is transferred through our organization is set forth under “Note 2 – Summary of Significant Accounting Policies – Cash and Cash Equivalents” to the Consolidated

Financial Statements of this report.

During the year ended December 31, 2022, we funded our technology development and operations principally through our beginning global cash balances, including the cash balances at ACM Shanghai,

and borrowings by ACM Shanghai from local financial institutions.

Cash and cash equivalents, short-term time deposits and long-term time deposits were $420.4 million at December 31, 2022, compared to $562.5 million at December 31, 2021.

$142.1 million decrease was primarily driven by $93.2 million net cash used in investing activities, $62.2 million of cash used by operations, and a $33.6 million decline from the effect of exchange rate on cash, cash equivalents and restricted

cash, partly offset by $45.9 million provided by financing activities.

The table below represents the cash and cash equivalents and time deposits as of

December 31, 2022 and 2021:

A detailed description of how cash is transferred through our organization is set forth unde r “Note 2 – Summary of Significant Accounting Policies – Cash and Cash Equivalents” to the Consolidated Financial Statements of this report.

During the year ended December 31, 2023, we funded our technology development and operations principally through our beginning global cash balances, including the cash balances at ACM Shanghai, borrowings by ACM Shanghai from local financial institutions and our loan from China CITIC Bank.

Cash and cash equivalents, restricted cash, short-term time deposits and long-term time deposits were $304.5 million at December 31, 2023, compared to $420.9 million at December 31, 2022.

The ($116.4 million) decrease was primarily driven by ($75.3 million) of cash used in operations, ($60.2 million) used in investing activities excluding the change in time deposits, $18.5 million net cash provided by financing activitie s, a $1.7 million decrease from the effect of exchange rate on cash, cash equivalents and restricted cash, and a $2.4 million incr ease from the effect of exchange rate on time deposits.

The table below represents the cash an d cash equivalents, restricted cash, and time deposits as of December 31, 2023 and 2022:

(In thousands)

Cash and cash equivalents and time deposits:

Cash and cash equivalents

Cash and cash equivalents, restricted cash, and time deposits:

Cash and cash equivalents and restricted cash

$ 183,173 $ 248,451

Short-term time deposits 80,524 70,492

Long-term time deposits 40,818 101,956

Our future working capital needs beyond the next twelve months will depend on many factors, including the rate of our business and revenue growth, the payment schedules of our customers, the

timing and magnitude of our capital expenditures, and the timing of investment in our research and development as well as sales and marketing.

We believe our existing cash and cash equivalents and short-term and long-term time deposits, our

cash flow from operating activities, and bank borrowings by ACM Shanghai will be sufficient to meet our anticipated cash needs within our longer-term planning horizon.

ACM Shanghai has historically participated in certain PRC government-sponsored grant and subsidy programs, as described under “—Key Components of Results of Operations—PRC Government Research and

Development Funding” and “—Contractual Obligations” and we expect that ACM Shanghai will continue to take advantage of these programs when they are available and fit with our business strategy.

ACM Shanghai generally applies for these grants

and subsidies through the applicable PRC government agency’s defined processes.

Periodically, the public relations department researches the availability of these grants and subsidies through the PRC government agencies with whom ACM Shanghai

files business surveys and taxes.

Total $ 304,515 $ 420,899

Our future working capital needs beyond the next twelve months will depend on many factors, including the rate of our business and revenue growth, the payment schedules of our customers, the timing and magnitude of our capital expenditures, and the timing of investment in our research and development as well as sales and marketing.

We believe our existing cash and cash equivalents and short-term and long-term time deposits, our cash flow from operating activities, and bank borrowings by us and ACM Shanghai will be sufficient to meet our anticipated cash needs within our longer-term planning horizon.

ACM Shanghai has historically participated in certain mainland China government-sponsored grant and subsidy programs, as described under “—Key Components of Results of Operations—mainland China Government Research and Development Funding” and “—Contractual Obligations” and we expect that ACM Shanghai will continue to take

advantage of these programs when they are available and fit with our business strategy.

ACM Shanghai generally applies for these grants and subsidies through the applicable mainland China government agency’s defined processes.

Periodically, the public relations department researches the availability of these grants and subsidies through mainland China government agencies with whom ACM Shanghai files business surveys and taxes.

Management of ACM Shanghai then assesses which grants and subsidies for which ACM Shanghai may be eligible and submits the relevant application.

The decision to award the grant to ACM Shanghai is made by the

relevant PRC government agencies based on suitability and the merits of the application.

Neither ACM Research, nor ACM Shanghai or any of our other subsidiaries, has any direct relationship with any PRC government agency, and our anticipated

cash needs for the next twelve months neither anticipate, nor require, receipt of any PRC government grants or subsidies.

To the extent our cash and cash equivalents, cash flow from operating activities and short-term bank borrowings are insufficient to fund our future activities in accordance with our strategic

plan, we may determine to raise additional funds through public or private debt or equity financings or additional bank credit arrangements.

We also may need to raise additional funds in the event we determine in the future to effect one or

more acquisitions of businesses, technologies and products.

The decision to award the grant to ACM Shanghai is made by the relevant mainland China government agencies based on suitability and the merits of the application.

Neither ACM Research, nor ACM Shanghai or any of our other subsidiaries, has any direct relationship with any mainland China government agency, and our anticipated cash needs for the next twelve months neither anticipate, nor require, receipt of any mainland China government grants or subsidies.

To the extent our cash and cash equivalents, cash flow from operating activities and short-term bank borrowings are insufficient to fund our future activities in accordance with our strategic plan, we may determine to raise additional funds through public or private debt or equity financings or additional bank credit arrangements.

We also may need to raise additional funds in the event we determine in the future to effect one or more acquisitions of businesses, technologies and products.

If additional funding is necessary or desirable, we may not be able to obtain bank credit arrangements or to affect an equity or debt financing on terms acceptable to us or at all.

Restrictions under PRC laws and regulations as well as restrictions under ACM Shanghai’s bank loan agreements, may significantly restrict ACM Shanghai’s ability to transfer a portion of ACM

Shanghai’s net assets to ACM Research, other subsidiaries of ACM Research and to holders of ACM Research Class A common stock.

Restrictions under mainland China laws and regulations as well as restrictions under ACM Shanghai’s bank loan agreements, may significantly restrict ACM Shanghai’s ability to transfer a portion of ACM Shanghai’s net assets to ACM Research, other subsidiaries of ACM Research and to holders of ACM Research Class A common stock.

See “Item 1A.

Risk Factors–Regulatory Risks–The PRC’s currency exchange control and government restrictions on

investment repatriation may impact our ability to transfer funds outside of the PRC, which could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, otherwise fund and conduct

our business, or pay dividends on our common stock.”

For the years ended December 31, 2022 and 2021, with the exception of sales and services-related transfer-pricing payments in the ordinary course of business, no transfers, dividends, or

distributions have been made between ACM Research, and its subsidiaries, including ACM Shanghai, or to holders of ACM Research Class A common stock.

Risk Factors–Regulatory Risks–Mainland China’s currency exchange control and government restrictions on investment repatriation may impact our ability to transfer funds outside of mainland China, which could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, otherwise fund and conduct our business, or pay dividends on our common stock.”

For the years ended December 31, 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 transfers or distributions have been made between ACM Research, and its subsidiaries, including ACM Shanghai, or to holders of ACM Research Class A common stock.

Our cash and cash equivalents at December 31, 2023 were held for working capital purposes and other potential investments.

ACM Shanghai, our only

direct PRC subsidiary, is, however, subject to PRC restrictions on distributions to equity holders.

ACM Shanghai, our only direct mainland China subsidiary, is, however, subject to mainland China restrictions on distributions to equity holders.

The use of proceeds raised by the STAR Market IPO, without further approvals, are limited to specific usage.

We currently intend for ACM

Shanghai to retain all available funds from any future earnings for use in the operation of its business and do not anticipate it paying any cash dividends.

receivable balance fluctuates from period to period, which affects our cash flow from operating activities.

We currently intend for ACM Shanghai to retain all available funds from any future earnings for use in the operation of its business and do not anticipate it paying any cash dividends.

Our accounts receivable balance fluctuates from period to period, which affects our cash flow from operating activities.

Fluctuations vary depending on cash collections, client mix, and the timing of shipment and acceptance of our tools.

We have never declared or paid cash dividends on our capital stock.

We intend to retain all available funds and any future earnings to support the operation of and to finance the growth and

development of our business and do not anticipate paying any cash dividends in the foreseeable future.

We intend to retain all available funds and any future earnings to support the operation of and to finance the growth and development of our business and do not anticipate paying any cash dividends in the foreseeable future.

Cash Flow Used in Operating Activities.

Net cash used by operations of $62.2 million during the year ended December 31, 2022 consisted

Net cash used by operations of ($75.3 million) during the year ended December 31, 2023 consisted of:

Year Ended December 31,

2023 2022 2021

(in thousands)

(Gain) l oss on disposals of property plant and equipment

Net Income $ 96,852 $ 50,564 $ 42,921

Non-cash operating lease cost

3,580 2,816 2,451

Provision for inventory 575 2,248 75

Provision for credit losses 2,741 - -

Gain on disposals of property plant and equipment

Depreciation and amortization 8,092 5,366 2,353

Realized gain on trading securities

Equity income in net income of affiliates

Unrealized loss (gain) on trading securities

Realized gain on short-term investments (9,047) (1,116) -

Income from equity method investments

(9,952) (4,666) (4,637)

Unrealized loss (gain) on short-term investments 2,737 7,855 (607)

Deferred income taxes (13,647) 4,027 (1,840)

1 unchanged sentence

Net changes in operating assets and liabilities:

(184,590) (137,006) (85,926)

Net cash flow used in operating activities $ (75,323) $ (62,194) $ (40,093)

Significant changes in operating asset and liability accounts during the

year-ended December 31, 2022 included the following uses of cash:

Significant changes in operating asset and liability accounts during the year-ended December 31, 2023 included the following uses of cash:

increases of inventories of $164.0 million (Note 5), and an increase of accounts receivable of $108.7 million (Note 4).

As described under “—Key Components of

Results of Operations—PRC Government Research and Development Funding,” ACM Shanghai has received research and development grants from local and central PRC governmental authorities.

ACM Shanghai received $0.1 million of payments related to such grants in the year ended December 31, 2022, as compared to cash receipts of $5.2 million in the same period of 2021.

As described under “—Key Components of Results of Operations—mainland China Government Research and Development Funding,” ACM Shanghai has received research and development grants from local and central mainland China governmental author ities.

ACM Shanghai receiv ed $51,000 of payments related to such grants in the year ended December 31, 2023, as compared to cash receipts of $1.1 million in the same period of 2022.

The uses of cash are offset by the following significant sources of cash:

an increase in advances from customers of $104.3 (Note 3), an increase in other payables and accrued expenses of $23.4

million, and an increase in accounts payable of $17.5 million.

Cash Flow from Investing Activities.

Net cash used for investing activities, excluding net cash used to purchase time deposits, for

the year ended December 31, 2022 was $93.2 million, primarily consisting of $91.1 million purchase of property and equipment.

Cash Flow from Financing Activities.

Net cash provided by financing for

the year ended December 31, 2022 was $45.9 million, primarily consisting of $44.6 million net proceeds from short and long-term borrowings, and $1.3 million in proceeds from the exercise of stock options.

ACM Shanghai, together with its subsidiaries, has short-term and long-term borrowings with five banks, as follows:

Agreement Date

Maturity Date

Interest Rate

Maximum Borrowing

Amount Outstanding

an increase in advances from customers of $30.0 (Note 3), an increase in other payables and accrued expenses of $21.4 million, and an increase in accounts payable of $42.3 million.

Cash Flow Used in Investing Activities.

Net cash used in investing activities for the year ended December 31, 2023, excluding net cash proceeds from the sale of time deposits, was ($60.2 million), primarily consisting of ($64.3 million) purchase of property and equipment and intangible assets, and ($7.5 million) purchase of long-term investments (note 14), partly offset by $3.4 million net proceeds from the sale of short-term investments, and $8.2 million of dividends received from long-term investments (note 14).

Cash Flow provided by Financing Activities.

Net cash provided by financing for the year ended December 31, 2023 was $18.5 million, primarily consisting of $16.3 million net proceeds from short and long-term borrowings, and $6.1 million in proceeds from the exercise of stock options, partly offset by ($4.0 million) of dividends paid by ACM Shanghai.

We and ACM Shanghai, together with the subsidiaries of ACM Shanghai, have short-term and long-term borrowings with six banks, as follows:

Lender Agreement Date Maturity Date Annual

Interest Rate Maximum Borrowing

Amount(1) Amount Outstanding

at December 31, 2023

(in thousands)

China Everbright Bank

December 2023

Bank of Communications

September 2023

Bank of China

China Merchants Bank

September 2023

China Merchants Bank

November 2020

Repayable by installments and the last installments repay a ble in

November 2030

Bank of China

Repayable by installments and the last installments repay a ble in

Bank of China

September, 2021

Repayable by installments and the last installments repay a ble in

September 2021

China CITIC Bank (2) July 2023 Repayable by installments and the last installments repayable in December 2025

4.50 % RMB200,000 RMB100,000

$ 28,240 $ 14,120

China Everbright Bank July 2021 August 2024 3.00 % RMB150,000 RMB17,440

$ 21,180 $ 2,463

Bank of China September 2023 September 2024 2.87 % RMB40,000 RMB40,000

$ 5,648 5536 $ 5,648

China Merchants Bank August 2023 September 2024 3.00 % RMB200,000 RMB153,000

$ 28,240 $ 21,603

China Merchants Bank November 2020 Repayable by installments and the last installments repayable in November 2030

3.95 % RMB128,500 RMB94,633

$ 18,144 $ 13,362

Bank of China June 2021 Repayable by installments and the last installments repayable in June 2024

2.60 % RMB10,000 RMB7,500

$ 1,412 $ 1,059.00

Bank of China September, 2021 Repayable by installments and the last installments repayable in September 2024 2.60 % RMB35,000 RMB28,000

$ 4,942 $ 3,954

Bank of Shanghai December,2022 October 2024 2.85 % RMB100,000 RMB100,000

$ 14,120 $ 14,120

China CITIC Bank August 2023 Repayable by installments and the last installments repayable in August 2025

3.10 % RMB100,000 RMB100,000

$ 14,120 $ 14,120

Industrial Bank of Korea July 2023 July 2024 6.03 % KRW500,000 KRW100,000

Industrial Bank of Korea December 2023 December 2024 4.27 % KRW2,000,000 KRW2,000,000

$ 1,544 $ 1,544

$ 137,976 $ 92,070

(1) Converted from RMB to dollars as of December 31, 2023.

All of the amounts owing under the line of credit with Bank of Shanghai Pudong Branch are guaranteed by CleanChip Technologies LTD, a wholly owned

subsidiary of ACM Shanghai.

The loan from China Merchants Bank is secured by a pledge of the property of ACM Shengwei and guaranteed by ACM Shanghai, as described above under “—Contractual Obligations.”

Effect of exchange rate changes on cash,

cash equivalents and restricted cash.

The loan from China Merchants Bank is secured by a pledge of the property of ACM Lingang and guaranteed by ACM Shanghai, as described above under “—Contractual Obligations.”

(2) This China CITIC bank facility agreement is with ACM Research, Inc.

Effect of exchange rate changes on cash, cash equivalents and restricted cash.

The impact of fluctuations of the RMB to U.S.

dollar currency exchange rate on a significant balance of our cash, and cash equivalents held in RMB-denominated accounts (Note 2) contributed to a

$33.8 million decline in the value of these items during the year ended December 31, 2022 .

dollar currency exchange rate on a significant balance of our cash, and cash equivalents held in RMB-denominated accounts (Note 2) contributed t o a $1.7 million decrease in the value of these items during the year ended December 31, 2023.

Contractual Obligations

Grant Contract for State-owned Construction Land Use Right in Shanghai City

In 2020 ACM Shanghai, through its wholly-owned subsidiary ACM Shengwei, entered into a Grant Contract for State-owned Construction Land Use Right in Shanghai City (Category of R&D Headquarters

and Industrial Projects), or the Grant Agreement, with the China (Shanghai) Pilot Free Trade Zone Lin-gang Special Area Administration, or the Grantor.

ACM Shengwei obtained rights to use approximately 43,000 square meters (10.6 acres) of land

in the Lingang Heavy Equipment Industrial Zone of Lin-gang Special Area of China (Shanghai) Pilot Free Trade Zone, or the Land Use Right, for a period of fifty years, commencing on the date of delivery of the land in July 2020, which we refer

to as the Delivery Date.

In exchange for its land use rights, ACM Shengwei paid aggregate grant fees of RMB 61.7 million ($9.5 million), or the Grant Fees, and a performance deposit of RMB 12.3 million ($1.9 million),

which is equal to 20% of the aggregate Grant Fees, to secure its achievement of the following performance milestones:

In 2020 ACM Shanghai, through its wholly-owned subsidiary ACM Lingang, entered into a Grant Contract for State-owned Construction Land Use Right in Shanghai City (Category of R&D Headquarters and Industrial Projects), or the Grant Agreement, with the China (Shanghai) Pilot Free Trade Zone Lin-gang Special Area Administration, or the Grantor.

ACM Lingang obtained rights to use approximately 43,000 square meters (10.6 acres) of land in the Lingang Heavy Equipment Industrial Zone of Lin-gang Special Area of China (Shanghai) Pilot Free Trade Zone, or the Land Use Right, for a period of fifty years, commencing on the date of delivery of the land in July 2020, which we refer to as the Delivery Date.

In exchange for its land use rights, ACM Lingang paid aggregate grant fees of RMB 61.7 million ($9.5 million), or the Grant Fees, and a performance deposit of RMB 12.3 million ($1.9 million), which is equal to 20% of the aggregate Grant Fees, to secure its achievement of the following performance milestones:

• the start of construction within 6 months after the Delivery Date (60% of the performance deposit), or Construction Start Milestone;

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Upon satisfaction of a milestone, the portion of the performance deposit attributable to that milestone will be repayable to ACM Shengwei within ten business days.

If the achievement of any of the

above milestones is delayed or abandoned, ACM Shengwei may be subject to additional penalties and may lose its rights to both the use of the granted land and any partially completed facilities on that land.

The status of the performance milestones for the year ended December 31, 2022 is as follows:

ACM Shengwei achieved the Construction Start Milestone and 60% of the performance deposit was refunded to ACM Shanghai in 2020.

The Construction Completion Milestone was originally required to be met prior to January 9, 2023.

Due to COVID-19 related restrictions, ACM Shengwei has experienced delays and did not meet the milestone.

December 2022, prior to the deadline, ACM filed a request for a six-month extension, which was granted, and thus such milestone was extended until July 9, 2023.

ACM Shengwei expects to receive a new grant agreement, Version 3.0, by the

end of March 2023.

ACM Shengwei expects it will reach the Construction Completion Milestone on or before the extended deadline.

We cannot guarantee the new extension will be met or that ACM Shengwei will be refunded this 20% portion of

the performance deposit.

If the achievement of any of the above milestones is delayed or abandoned, ACM Shengwei may be subject to additional penalties and may lose its rights to both the use of the granted land and any partially completed facilities on that land.

The status of the performance milestones for the period ended December 31 , 2023 is as follows:

• ACM Lingang achieved the Construction Start Milestone and 60% of the performance deposit was refunded to ACM Shanghai in 2020.

• The Construction Completion Milestone was required to be met by January 9, 2024 but was not achieved.

However, ACM Lingang believes it will receive the refund without penalty based on its explanation to the respective regulatory authorities of logistic-related delays, and expectations that it will meet the milestone before July 9, 2024.

We cannot guarantee that ACM Lingang will achieve the missed milestone in 2024, or even if it does achieve the milestone in 2024, that it will be refunded some or all of the 20% portion of the performance deposit of RMB 2.5 million ($0.4 million).

Contractual penalties in the case of a delay of Construction Completion Milestone :

If ACM Shengwei fails to complete the construction pursuant to the date agreed under the Grant Agreement or any extended completion date approved by the Grantor, ACM Shengwei shall pay 50% of the deposit for

timely completion of construction as liquidated damages;

If ACM Shengwei delays the completion for more than six months beyond the date agreed under the Grant Agreement, or beyond any extended completion date approved by the Grantor, it shall pay the total deposit

for timely completion of construction as liquidated damages.

◦ If ACM Lingang fails to complete the construction pursuant to the date agreed under the Grant Agreement or any extended completion date approved by the Grantor, ACM Lingang shall pay 50% of the deposit for timely completion of construction as liquidated damages;

◦ If ACM Lingang delays the completion for more than six months beyond the date agreed under the Grant Agreement, or beyond any extended completion date approved by the Grantor, it shall pay the total deposit for timely completion of construction as liquidated damages.

◦ If the delay is more than one year, the Grantor is entitled to terminate the Grant Agreement and take back the Land Use Right.

In such case, the Grantor shall refund the Grant Fees for the remaining land use

term after deducting the deposit agreed under the Grant Agreement and refund the deposit for timely commencement of production and relevant bank interests in full to ACM Shengwei.

The Production Start Milestone was originally required to be met prior to January 9, 2024.

In December 2022, due to COVID-related delays, ACM filed a request for a six-month extension, which was granted, and

thus such milestone was extended until July 9, 2024.

ACM Shengwei expects to receive a new grant agreement, Version 3.0, by the end of March 2023.

We cannot guarantee the extension will be met or that ACM Shengwei will be refunded this

20% portion of the performance deposit.

In such case, the Grantor shall refund the Grant Fees for the remaining land use term after deducting the deposit agreed under the Grant Agreement and refund the deposit for timely commencement of production and relevant bank interests in full to ACM Lingang.

• The Production Start Milestone is now required to be met by January 9, 2025.

The Production Start Milestone was originally required to be met prior to January 9, 2024, but due to COVID-related delays, ACM filed multiple requests for extensions, the latest of which was granted on July 7, 2023.

We cannot guarantee that ACM Lingang will meet any extended deadline or be refunded this 20% portion of the performance deposit.

Contractual penalties in the case of a delay of Production Start Milestone :

If ACM Shengwei fails to commence production pursuant to the date agreed under the Grant Agreement or any extended commencement date approved by the Grantor, ACM Shengwei shall pay the total deposit for timely

commencement of production as liquidated damages;

If ACM Shengwei fails to commence production pursuant to the extended commencement of production date, the Grantor is entitled to terminate the Grant Agreement and take back the Land Use Right.

In such case,

the Grantor shall refund the Grant Fees for the remaining land use term after deducting the deposit agreed under the Grant Agreement to ACM Shengwei.

In addition to the milestones, covenants in the Grant Agreement require that, among other things, ACM Shengwei will be required to pay liquidated damages in the event that:

◦ If ACM Lingang fails to commence production pursuant to the date agreed under the Grant Agreement or any extended commencement date approved by the Grantor, ACM Lingang shall pay the total deposit for timely commencement of production as liquidated damages;

◦ If ACM Lingang fails to commence production pursuant to the extended commencement of production date (more than six months beyond the production start milestone), the Grantor is entitled to terminate the Grant Agreement and take back the Land Use Right.

In such case, the Grantor shall refund the Grant Fees for the remaining land use term after deducting the deposit agreed under the Grant Agreement to ACM Lingang.

In addition to the milestones, covenants in the Grant Agreement require that, among other things, ACM Lingang will be required to pay liquidated damages in the event that:

(a) it does not make a total investment (including the costs of construction, fixtures, equipment and grant fees) of at least RMB 450.0 million ($63.4 million).

ACM Shengwei shall pay the

liquidated damages equal to the same proportion of the Grant Fees as the proportion of the actual shortfall amount of investment in the total agreed investment amount or the investment intensity.

(b) within six years after the Delivery Date, or prior to July 9, 2026, it does not (i) generate a minimum specified amount of annual sales of products manufactured on the granted land or (ii)

pay to the PRC at least RMB 157.6 million ($22.2 million) in annual total taxes (including value-added taxes, corporate income tax, personal income taxes, urban maintenance and construction taxes, education surcharges, stamp taxes, and vehicle

and shipping taxes) as a result of operations in connection with the granted land.

If the total tax revenue of the project fails to reach but is no less than 80% of the standard agreed under the Grant Agreement, ACM Shengwei shall pay 20% of the actual shortfall amount of the

tax revenue as liquidated damages.

terminate the Grant Agreement, take back the Land Use Right, and shall refund the Grant Fees for the remaining land use term to ACM Shengwei.

If the Grant Agreement is terminated because of breach of any terms above, the Grantor shall take back the buildings, fixtures and auxiliary facilities on the land area and provide ACM Shengwei

with corresponding compensation according to the residual value of the buildings, fixtures and auxiliary facilities when they are taken back.

The total cumulative investment of land, buildings and construction in progress related to ACM

Shengwei amounted to $35.4 million and $13.3 million at December 31, 2022 and December 31, 2021, respectively.

ACM Lingang shall pay the liquidated damages equal to the same proportion of the Grant Fees as the proportion of the actual shortfall amount of investment in the total agreed investment amount or the investment intensity.

(b) within six years after the Delivery Date, or prior to July 9, 2026, it does not (i) generate a minimum specified amount of annual sales of products manufactured on the granted land or (ii) pay at least RMB 157.6 million ($22.2 million) in annual total taxes (including value-added taxes, corporate income tax, personal income taxes, urban maintenance and construction taxes, education surcharges, stamp taxes, and vehicle and shipping taxes) as a result of operations in connection with the granted land.

If the total tax revenue of the project fails to reach but is no less than 80% of the standard agreed under the Grant Agreement, ACM Lingang shall pay 20% of the actual shortfall amount of the tax revenue as liquidated damages.

If the total tax revenue of the project fails to reach 80% of the standard agreed under the Grant Agreement within 1 month after the agreed date of reaching target production, the Grantor is entitled to terminate the Grant Agreement, take back the Land Use Right, and shall refund the Grant Fees for the remaining land use term to ACM Lingang.

If the Grant Agreement is terminated because of breach of any terms above, the Grantor shall take back the buildings, fixtures and auxiliary facilities on the land area and provide ACM Lingang with corresponding compensation according to the residual value of the buildings, fixtures and auxiliary facilities when they are taken back.

The total cumulative investment of land, buildings and construction in progress related to ACM Lingang amounted to $116.9 million and $35.4 million at December 31, 2023 and December 31, 2022, respectively.

How We Evaluate Our Operations

We present information below with respect to four measures of financial performance:

We define “shipments” of tools to include (a) a “repeat” delivery to a customer of a type of tool that the customer has previously accepted, for which we recognize revenue upon delivery, and (b) a “first-time”

delivery of a “first tool” to a customer on an approval basis, for which we may recognize revenue in the future if contractual conditions are met, or if a purchase order is received.

We define “adjusted EBITDA” as net income excluding interest expense (net), income tax benefit (expense), depreciation and amortization, unrealized (gain) loss on trading securities, and stock-based

compensation.

• We define “shipments” of tools to include (a) a “repeat” delivery to a customer of a type of tool that the customer has previously accepted, for which we recognize revenue upon delivery, and (b) a “first-time” delivery of a “first tool” to a customer on an approval basis, for which we may recognize revenue in the future if contractual conditions are met, or if a purchase order is received.

• We define “adjusted EBITDA” 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.

We define adjusted EBITDA to also exclude restructuring costs, although we have not incurred any such costs to date.

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• We define “adjusted operating income (loss)” as our income (loss) from operations excluding stock-based compensation.

These financial measures are not based on any standardized methodologies prescribed by accounting principles generally accepted in the United States, or GAAP, and are not necessarily comparable to

similarly titled measures presented by other companies.

We have presented shipments, adjusted EBITDA, free cash flow and adjusted operating income (loss) because they are key measures used by our management and board of directors to understand and

evaluate our operating performance, to establish budgets and to develop operational goals for managing our business.

We believe that these financial measures help identify underlying trends in our business that could otherwise be masked by the

effect of the expenses that we exclude.

our core operating performance and that the exclusion of property and equipment purchases from operating cash flow can provide a usual means to gauge our capability to generate cash.

Accordingly, we believe that these financial measures provide

useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to key

financial metrics used by our management in its financial and operational decision-making.

Shipments, adjusted EBITDA, free cash flow and adjusted operating income (loss) are not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to,

measures prepared in accordance with GAAP.

These financial measures are not based on any standardized methodologies prescribed by accounting principles generally accepted in the United States, or GAAP, and are not necessarily comparable to similarly titled measures presented by other companies.

We have presented shipments, adjusted EBITDA, free cash flow and adjusted operating income (loss) because they are key measures used by our management and board of directors to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business.

We believe that these financial measures help identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude.

In particular, we believe that the exclusion of the expenses eliminated in calculating adjusted EBITDA and adjusted operating income (loss) can provide useful measures for period-to-period comparisons of our core operating performance and that the exclusion of property and equipment purchases from operating cash flow can provide a usual means to gauge our capability to generate cash.

Accordingly, we believe that these financial measures provide useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision-making.

Shipments, adjusted EBITDA, free cash flow and adjusted operating income (loss) are not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP.

We consider shipments a key operating metric as it reflects the total value of products delivered to customers and prospective customers by our productive assets.

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• a shipment to a customer of a type of tool that the customer has previously accepted, for which we recognize revenue when the tool is delivered;

a shipment to a customer of a type of tool that the customer is receiving and evaluating for the first time, in each case a “first tool,” for which we may recognize revenue at a later date, subject to the

customer’s acceptance of the tool upon the tool’s satisfaction of applicable contractual requirements or subject to the costumer’s subsequent discretionary commitment to purchase the tool.

that previously had received only SAPS II tools ─ or to a new customer that has never purchased any tool from us.

Shipments for the year s ended December 31, 2022, 2021, and 2020 totaled

$539 million, $372 million, and $182 million, respectively.

Repeat tool shipments in the year s ended December 31, 2022, 2021 and 2020 totaled $288 million, $210 million

and $121 million , respectively.

First tool shipments for the year s ended December 31, 2022, 2021, and

2020 totaled $251 million, $162 million, and $62 million , respectively.

The dollar amount attributed to a “first tool” shipment is equal to the consideration we expect to receive if any and all contractual requirements are satisfied and the customer accepts the tool,

or if the customer subsequently determines in its discretion to purchase the tool.

There are a number of limitations related to the use of shipments in evaluating our business, including that customers have significant, or in some cases total,

discretion in determining whether to accept or purchase our tools after evaluation and their decision not to accept or purchase delivered tools is likely to result in our inability to recognize revenue from the delivered tools.

shipments reflect the value of incremental new products under evaluation delivered to our customers or prospective customers for a given period and is used as an internal key metric to reflect future potential revenue opportunity.

cumulative cost of “first tool” shipments under evaluation at customers which have not been accepted by the customer is carried at cost and reflected in finished goods inventory (see note 5 to the condensed consolidated financial statements

included in this report).

• a shipment to a customer of a type of tool that the customer is receiving and evaluating for the first time, in each case a “first tool,” for which we may recognize revenue at a later date, subject to the customer’s acceptance of the tool upon the tool’s satisfaction of applicable contractual requirements or subject to the customer’s subsequent discretionary commitment to purchase the tool.

“First tool” shipments can be made to either an existing customer that has not previously accepted that specific type of tool in the past ─ for example, a delivery of a SAPS V tool to a customer that previously had received only SAPS II tools ─ or to a new customer that has never purchased any tool from us.

Shipments for the years ended December 31, 2023, 2022, and 2021 totaled $597 million, $539 million, and $372 million, respectively.

Repeat tool shipments in the years ended December 31, 2023, 2022, and 2021 totaled $310 million, $288 million and $210 million, respectively.

First tool shipments for the years ended December 31, 2023, 2022, and 2021 totaled $286 million, $251 million, and $162 million, respectively.

The dollar amount attributed to a “first tool” shipment is equal to the consideration we expect to receive if any and all contractual requirements are satisfied and the customer accepts the tool, or if the customer subsequently determines in its discretion to purchase the tool.

There are a number of limitations related to the use of shipments in evaluating our business, including that customers have significant, or in some cases total, discretion in determining whether to accept or purchase our tools after evaluation and their decision not to accept or purchase delivered tools is likely to result in our inability to recognize revenue from the delivered tools.

“First tool” shipments reflect the value of incremental new products under evaluation delivered to our customers or prospective customers for a given period and is used as an internal key metric to reflect future potential revenue opportunity.

The cumulative cost of “first tool” shipments under evaluation at customers which have not been accepted by the customer is carried at cost and reflected in finished goods inventory (see note 5 to the condensed consolidated financial statements included in this report).

“First tool” shipments exclude deliveries to customers for which ACM does not have a basis to expect future revenue.

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• adjusted EBITDA excludes depreciation and amortization and, although these are non-cash expenses, the assets being depreciated or amortized may have to be replaced in the future;

we exclude stock-based compensation expense from adjusted EBITDA and adjusted operating income (loss), although (a) it has been, and will continue to be for the foreseeable future, a significant recurring

expense for our business and an important part of our compensation strategy and (b) if we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary expense included in operating expenses

would be higher, which would affect our cash position;

the expenses and other items that we exclude in our calculation of adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from adjusted EBITDA when they report

their operating results;

• we exclude stock-based compensation expense from adjusted EBITDA and adjusted operating income (loss), although (a) it has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy and (b) if we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary expense included in operating expenses would be higher, which would affect our cash position;

• the expenses and other items that we exclude in our calculation of adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from adjusted EBITDA when they report their operating results;

• adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs;

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• adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;

although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash

requirements for such replacements;

adjusted EBITDA includes expense reductions and non-operating other income attributable to PRC governmental grants, which may mask the effect of underlying developments in net income, including trends in

current expenses and interest expense, and free cash flow includes the PRC governmental grants, the amount and timing of which can be difficult to predict and are outside our control.

• although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements;

• adjusted EBITDA includes expense reductions and non-operating other income attributable to mainland China governmental grants, which may mask the effect of underlying developments in net income, including trends in current expenses and interest expense, and free cash flow includes the mainland China governmental grants, the amount and timing of which can be difficult to predict and are outside our control.

The following table reconciles net income, the most directly comparable GAAP financial measure, to adjusted EBITDA:

Year Ended December 31,

2023 2022 2021 % Change

2023 v 2022 Absolute

Change 2023 v

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Adjusted EBITDA Data:

Net Income $ 96,852 $ 50,564 $ 42,921 91.5 % $ 46,288

Interest expense (income), net (5,673) (7,085) 260 -19.9 % 1,412

Income tax expense (benefit)

Income tax expense

19,364 16,798 134 15.3 % 2,566

Depreciation and amortization 8,092 5,366 2,353 50.8 % 2,726

Stock based compensation 27,338 7,730 5,117 253.7 % 19,608

Change in fair value of financial liability

Unrealized (gain) loss on trading securities

Unrealized (gain) loss on short-term investments 2,737 7,855 (607) -65.2 % (5,118)

Adjusted EBITDA $ 148,710 $ 81,228 $ 50,178 83.1 % $ 67,482

The $31.0 million increase in adjusted EBITDA for the year ended December 31, 2022 as compared to the year ended December 31, 2021 reflected

higher income tax expense, an increase in unrealized loss on trading securities, an increase in net income, an increase in stock-based compensation, and an increase in

depreciation and amortization, partly offset by a negative impact from an increase in interest income, net.

We do not exclude from adjusted EBITDA expense reductions and non-operating other income attributable to PRC governmental grants because we consider and incorporate the expected amounts and timing

of those grants in incurring expenses and capital expenditures.

If we did not receive the grants, our cash expenses therefore would be lower, and our cash position would not be affected, to the extent we have accurately anticipated the amounts

of the grants.

For additional information regarding our PRC grants, please see “—Key Components of Results of Operations—PRC Government Research and Development Funding.”

The $67.5 million increase in adjusted EBITDA for the year ended December 31, 2023 as compared to the year ended December 31, 2022 reflected higher income tax expense, a decrease in unrealized loss on short-term investments, an increase in net income, an increase in stock-based compensation, and an increase in depreciation and amortization, partly offset by a negative impact from an increase in interest income, net.

We do not exclude from adjusted EBITDA expense reductions and non-operating other income attributable to mainland China governmental grants because we consider and incorporate the expected amounts and timing of those grants in incurring expenses and capital expenditures.

If we did not receive the grants, our cash expenses therefore would be lower,

and our cash position would not be affected, to the extent we have accurately anticipated the amounts of the grants.

For additional information regarding our mainland China grants, please see “—Key Components of Results of Operations—mainland China Government Research and Development Funding.”

Free Cash Flow

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Year Ended December 31,

2023 2022 2021 % Change

2023 v 2022 Absolute

Change 2023 v

3 unchanged sentences

Purchase of property and equipment (61,876) (91,094) (9,153) -32.1 % 29,218

Purchase of land-use-right

Prepayment for property

Purchase of trading securities

Purchase of long-term investments

(7,508) (4,279) - 75.5 % (3,229)

Free cash flow $ (144,707) $ (157,567) $ (49,246) -8.2 % $ 12,860

The changes in free cash flow for the year s ended December 31, 2022, 2021

and 2020 reflected the factors driving net cash used in operating activities, and an increase of purchases of property and equipment.

Consistent with our methodology for calculating adjusted EBITDA, we do not adjust free cash flow for the

effects of PRC government subsidies, because we take those subsidies into account in incurring expenses and capital expenditures.

We do not adjust free cash flow for the effects of time-deposits, which for our internal purposes are considered

as largely similar to cash.

The changes in free cash flow for the years ended December 31, 2023, 2022, and 2021 reflected the factors driving net cash used in operating activities, and an increase of purchases of property and equipment.

Consistent with our methodology for calculating adjusted EBITDA, we do not adjust free cash flow for the effects of mainland China government subsidies, because we take those subsidies into account in incurring expenses and capital expenditures.

We do not adjust free cash flow for the effects of time-deposits, which for our internal purposes are considered as largely similar to cash.

Adjusted Operating Income

Adjusted operating income excludes stock-based compensation from income from operations.

Although stock-based compensation is an important aspect of the compensation of our employees and

executives, determining the fair value of certain of the stock-based instruments we utilize involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the vesting or

future exercise of the related stock-based awards.

Furthermore, unlike cash compensation, the value of stock options, which is an element of our ongoing stock-based compensation expense, is determined using a complex formula that incorporates

factors, such as market volatility, that are beyond our control.

Management believes it is useful to exclude stock-based compensation in order to better understand the long-term performance of our core business and to facilitate comparison of

our results to those of peer companies.

Although stock-based compensation is an important aspect of the compensation of our employees and executives, determining the fair value of certain of the stock-based instruments we utilize involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the vesting or future exercise of the related stock-based awards.

Furthermore, unlike cash compensation, the value of stock options, which is an element of our ongoing stock-based compensation expense, is determined using a complex formula that incorporates factors, such as market volatility, that are beyond our control.

Management believes it is useful to exclude stock-based compensation in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies.

The use of non-GAAP financial measures excluding stock-based compensation has limitations.

If we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary

expense included in operating expenses would be higher and our cash holdings would be less.

If we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary expense included in

operating expenses would be higher and our cash holdings would be less.

The following tables reflect the exclusion of stock-based compensation, or SBC, from line items comprising income from operations:

Year Ended December 31,

2023 2022 2021

(GAAP) SBC Adjusted

(Non-GAAP) Actual

(GAAP) SBC Adjusted

(Non-GAAP) Actual

(GAAP) SBC Adjusted

(in thousands)

Revenue $ 557,723 $ - $ 557,723 $ 388,832 $ - $ 388,832 $ 259,751 $ - $ 259,751

Cost of revenue (281,508) (1,406) (280,102) (205,217) (520) (204,697) (144,895) (397) (144,498)

Gross profit 276,215 (1,406) 277,621 183,615 (520) 184,135 114,856 (397) 115,253

Operating expenses:

3 unchanged sentences

Income (loss) from operations $ 95,839 $ (27,338) $ 123,177 $ 59,035 $ (7,730) $ 66,765 $ 38,702 $ (5,117) $ 43,819

Adjusted operating income for the year ended December 31, 2022, as compared with the year ended December 31, 2021, increased due to a $20.3 million increase in income from operations partially offset by a $2.6 million increase in stock-based

compensation expense.

Adjusted operating income for the year ended December 31, 2021, as compared to December 31, 2020 reflected an increase in operating income of $ 17.2

million and a decrease in stock-based compensation of $ 0 .5 million.

Adjusted operating income for the year ended December 31, 2023, as compared with the year ended December 31, 2022, increased by $56.4 million due to a $36.8 million increase in income from operations and a $19.6 million increase in stock-based compensation expense.

Adjusted operating income for the year ended December 31, 2022, as compared with the year ended December 31, 2021, increased by $22.9 million due to a $20.3 million increase in income from operations and a $2.6 million increase in stock-based compensation expense.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis