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Reconciliations to U.S. generally accepted accounting principles (“GAAP”) financial measures from non-GAAP financial measures are presented below under “Reconciliation of GAAP to Non-GAAP Financial Measures.” Non-GAAP financial measures exclude stock-based compensation and, with respect to net income (loss) attributable to ACM Research, Inc. and basic and diluted earnings per share, also exclude unrealized loss on short-term investments.

Outlook

ACM has updated and narrowed its revenue guidance range for fiscal year 2023 to $520 million to $540 million from the previous guidance range of $515 million to $585 million. This expectation is based on ACM management’s current assessment of the continuing impact from international trade policy together with various expected spending scenarios of key customers, supply chain constraints, and the timing of acceptances for first tools under evaluation in the field, among other factors.

Operating Highlights and Recent Announcements

• Shipments. Total shipments in the third quarter of 2023 were $213 million, up 31% from the third quarter of 2022. Total shipments include deliveries for revenue in the quarter and deliveries of first tool systems awaiting customer acceptance for potential revenue in future quarters.
• Receipt of Purchase Order for Backside Clean and Bevel Etch Tool from Large U.S. Manufacturer. ACM announced the receipt of a purchase order for its ULTRA C b backside clean and bevel etch tool from a major U.S. semiconductor manufacturer. The tool is expected to be shipped to the prospective customer’s U.S. facility in the second quarter of 2024.
• Introduced Vacuum Cleaning Platform. ACM introduced the ULTRA C v Vacuum Cleaning Tool to meet the unique flux removal requirements for chiplets and other advanced 3D packaging structures. The new tool, which was developed in collaboration with several key customers, has demonstrated excellent process performance with no flux residual remaining post-clean. ACM also announced that it has received a purchase order from a major Chinese manufacturer for the tool, which it expects to deliver in the first quarter of 2024.
• Dividend. ACM’s principal operating subsidiary, ACM Research (Shanghai), Inc. (“ACM Shanghai”) (SSEC: 688082.SS), paid a dividend to its stockholders of RMB 0.372 per share for an aggregate total of approximately RMB 161.3 million (approximately $22.2 million) in the third quarter of 2023.
• Appointment of Ernst & Young Hua Ming LLP as Auditor for 2023. ACM announced that Ernst & Young Hua Ming LLP (“E&Y”) has been appointed as ACM’s independent registered public accounting firm to audit ACM’s consolidated financial statements and internal controls over financial reporting for the fiscal year ending December 31, 2023. The engagement of E&Y became effective on September 20, 2023.
  

Financial Summary

Unless otherwise noted, the following figures refer to the third quarter of 2023 and comparisons are with the third quarter of 2022.

• Revenue was $168.6 million, up 26.1%, reflecting higher sales of single wafer cleaning, Tahoe and semi-critical cleaning equipment; electro-chemical plating (“ECP”) (front-end and packaging), furnace and other technologies; and advanced packaging (excluding ECP), services and spares.
• Gross margin was 52.5%, up from 49.3%. Non-GAAP gross margin, which excludes stock-based compensation, was 52.9%, up from 49.4%. Gross margin exceeded the range of 40% to 45% reflected in ACM’s long-term business model. The increase in gross margin was due to a favorable product mix and improved gross margins for specific product lines. ACM expects gross margin to vary from period to period due to a variety of factors, such as product mix, currency impacts and sales volume.
• Operating expenses were $55.3 million, an increase of 61.2%. Non-GAAP operating expenses, which exclude the effect of stock-based compensation, were $45.3 million, up 39.2%. Operating expenses as a percent of revenue increased to 32.8% from 25.7%. Non-GAAP operating expenses as a percent of revenue increased to 26.9% from 24.4%.
• Operating income was $33.2 million, up from $31.6 million. Non-GAAP operating income, which excludes the effect of stock-based compensation, was $43.8 million, up from $33.5 million.
• Unrealized loss on short-term investments was $1.3 million. The loss reflects the change in market value of the investments by ACM Shanghai in short-term investments. The value is marked-to-market quarterly and is excluded in the non-GAAP financial metrics.
  
• Realized gain from sale of short-term investments was $0.7 million versus $1.1 million.
  
• Income tax expense was $0.7 million versus $10.5 million. As a result of a change in Section 174 of the U.S. Internal Revenue Code of 1986, as amended, that became effective on January 1, 2022, ACM’s effective tax rate remains elevated , due primarily to the requirement to capitalize and amortize previously deductible research and experimental expenses.
• Net income attributable to ACM Research, Inc. was $25.7 million, up from $21.0 million. Non-GAAP net income attributable to ACM Research, Inc., which excludes the effect of stock-based compensation and unrealized loss on short-term investments was $37.6 million, up from $28.2 million.
• Net income per diluted share attributable to ACM Research, Inc. was $0.39, up from $0.32. Non-GAAP net income per diluted share, which excludes the effect of stock-based compensation and unrealized loss on short-term investments, was $0.57, up from $0.42.
• Cash and cash equivalents were $207.1 million at September 30, 2023, versus $257.4 million at June 30, 2023. Cash and cash equivalents, plus restricted cash and time deposits, were $326.5 million at September 30, 2023, versus $376.1 million at June 30, 2023.
  

Conference Call Details

A conference call to discuss results will be held on Tuesday, November 7, 2023, at 8:00 a.m. Eastern Time (9:00 p.m. China Time). To join the conference call via telephone, participants must use the following link to complete an online registration process. Upon registering, each participant will receive email instructions to access the conference call, including dial-in information and a PIN number allowing access to the conference call. This pre-registration process is designed by the operator to reduce delays due to operator congestion when accessing the live call.

Online Registration: https://register.vevent.com/register/BIdd16996d506148a59592532dd0c43fd0

Participants who have not pre-registered may join the webcast by accessing the link at ir.acmrcsh.com/events.

A live and archived webcast will be available on the Investors section of the ACM website at www.acmrcsh.com.

Use of Non-GAAP Financial Measures

ACM presents non-GAAP gross margin, operating expenses, operating income, net income attributable to ACM Research, Inc. and basic and diluted earnings per share as supplemental measures to GAAP financial measures regarding ACM’s operational performance. These supplemental measures exclude the impact of stock-based compensation, which ACM does not believe is indicative of its core operating results. In addition, non-GAAP net income attributable to ACM Research, Inc. and basic and diluted earnings per share exclude non-cash change in fair value of financial assets and liabilities and unrealized gain on short-term investments, which ACM also believes are not indicative of its core operating results. A reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure is provided below under “Reconciliation of GAAP to non-GAAP Financial Measures.”

ACM believes these non-GAAP financial measures are useful to investors in assessing its operating performance. ACM uses these financial measures internally to evaluate its operating performance and for planning and forecasting of future periods. Financial analysts may focus on and publish both historical results and future projections based on the non-GAAP financial measures. ACM also believes it is in the best interests of investors for ACM to provide this non-GAAP information.

While ACM believes these non-GAAP financial measures provide useful supplemental information to investors, there are limitations associated with the use of these non-GAAP financial measures. These non-GAAP financial measures may not be reported by competitors, and they may not be directly comparable to similarly titled measures of other companies due to differences in calculation methodologies. The non-GAAP financial measures are not an alternative to GAAP information and are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures. They should be used only as a supplement to GAAP information and should be considered only in conjunction with ACM’s consolidated financial statements prepared in accordance with GAAP.