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UCTT Ultra Clean Hldgs

Participants
Annie Leschin Investor Relations
Jim Scholhamer Chief Executive Officer
Sheri Savage Chief Financial Officer
Arthur Su Needham & Company
Karl Ackerman Cowen
Christian Schwab Craig-Hallum Group
Brian Chin Stifel
Dick Ryan Dougherty
Call transcript
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Operator

Good afternoon and welcome to the Ultra Clean Technologies’ Third Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Annie Leschin. Please go ahead.

Annie Leschin

everyone. afternoon, Good and our operator for us joining Thank this thank afternoon. for call today you, you With Jim Chief Financial me Sheri Officer. and are Scholhamer, Chief Officer Executive Savage, Sheri remarks Jim after review, will call the some begin the we this prepared up questions. will business the with which and for will open financial follow with about Earlier this third press of XXXX. a quarter financial reporting afternoon, release we issued the results for the to can release press information on Relations This be a call of this webcast our how about of replay access and found website Investor section uct.com. the at

me cause Before we views you begin, performance, Form shipments non-GAAP on adjusted cautioned update may call the may contain actual call. here. no future are our and to to Jim. measures in and assumes SEC, statements release Jim? forward-looking and that today’s forward-looking All growth. the statements, uncertainties call. Today’s most relating press turn call over results measures. results that, differ to to based let our the new the company’s call also also remind the today’s I Reconciliations to with UCT recent XX-Q estimates, from uncertainties industry that after and as risks GAAP press of Form or orders, obligation contained And assumptions today projections them are financial and today’s management’s concerning periodic involve includes including Information is and materially are release. today’s in would like listed including risks products financial forward-looking those Investors regarding that these and contained with to filings statements XX-K

Jim Scholhamer

call us Thank everyone. Thank our quarter you, joining good third webcast. for Annie today and and for you afternoon conference

happy excellent for entire job let on our and take I October very during CEO Before and role leave. I strategy moment back they Sheri momentum be President after team as and would I resumed to executing and my a UCT I thank maintaining X a on am the the to to want to medical everyone know short I like that begin, absence. did my

We their combined are due moving efforts. shape better even forward to at

Our capital ramp led deliver very UCT. and demand with to this semiconductor strong collaborate in to in our customers equipment unprecedented quarter another during ability innovate, for partnership

Our serve. perform Leveraging our our of the our capabilities content expanded are manufacturing target locations, major meet additional the key at grow further enabling than end to upper demand operations customers’ the our we of faster continue modules model markets in to platforms. world-class we increasing on critical and

third the million. revenue year-over-year XX% total $XXX grew For quarter, to

and all Our than Non-GAAP semiconductor ever semiconductor industry pace revenue With opportunities. OEM times increased XX% market, rose tremendous was year-over-year. increased continued U.S. the continues the demand and include requirements OEM’s additions. from their the years, with keep X.X indicators $X.XX, share, per coming more to key of quarter XXXX. revenue third from from increasing capacity expansion keep meet and To major and require sees growth pointing This ability semiconductor challenges functionality. higher to the facing consumer sensitive content the with pace time equipment with technology partners. next-generation the UCT where their towards is outside capacity The to for earnings solutions, XX% cloud expand than a ability technologies architectures, environments of computing the to devices. few beyond traditional reshaping software-defined forces like the Among solid-state more the the important industry, myriad endpoint new are

are the and industry toward manufacturer capital semiconductor our As The customers our we expanding continues. further offerings equipment contract a outsourcing platforms. focused on specialized equipment trend capabilities into

increasingly expertise the OEMs for requirements more will become become technology as sophisticated, First, essential. even manufacturing

critical an these outsourcing, process significantly developing by technologies can Second, product the demand meet OEMs technology of devices components. shortening their lifecycle levels new at semiconductor on manufacturing focus key is higher to while required need magnifying By OEMs around engineering, By partner in pace. are content equipment outsourcing UCT accelerated expanding preferred customers’ on and the long-term the with our testing capital position strategy our executing as growth capabilities, we to fabrication, semiconductor platforms our integration industry. on

Turning industry demand more and XXXX since bigger, doubled the and OLED More is adoption production to slimmer, remain TVs. and as ongoing capital to high driven intensity mobile non-semi through OLED equipment display than resolution size the initial predicted and displays. of devices pursues XXXX our market display has faster cheaper by and business, flat-panel improvements, brighter, increases is of specifically, TV

our industry times a products growth strategic to the to in start and As We for revenue plan UCT raise healthy believe get These to at inorganic are take few the will semiconductor next capital display very manufacturers exciting the early to expect equipment remain to display market, strong forecast we new levels opportunities these we both organic next these on XXXX. level. to and indicate capitalize that years.

call Now, I in questions. results the turn financial and our more open would to like review to call for to the over Sheri then Sheri? detail

Sheri Savage

can I numbers reconciliation release the found discussion, today’s A earlier to non-GAAP referring be Thanks, press will only. be today. in issued Jim. In

to increase quarter performed sequential Third We third top quarter. a of our Semiconductor our a was for our financial of in end reached at X.X% to demand. prior Total again increase million, the once the X.X%. meet quarter ability revenue revenue $XXX.X We revenue another model. demonstrated quarter solid million, was of the customers’ grew $XXX.X UCT. record from an and

of steady As second to a manufacturing the grow revenue, continue compared we a million our $XXX.X million XX.X%. to held reached at U.S. Revenue from outside of customers. as our quarter high in semiconductor close to total $XXX percentage new the

total XX% quarter. revenue $XX where to compared X% XX%, so at mix. slightly XX.X% margin in XX.X% compared the for quarter with for the the quarter, third in Operating quarter were quarter. XX.X% we second Our second margin exceeding of product range non-semiconductor was to range to XX% third XX% saw Gross the the for to beneficial from Margins X.X% the high our targeted business in targeted second the for end of was our $XX.X accounting last quarter, of the quarter. quarter compared or down million of was million X.X%

Going within our expect we ranges. forward, to margins target remain

to absolute million percentage million while in to In revenue efficiency timely operating and dollars X.X%. the COGS order levels for momentum we hires expenses the For increased revenue keep the of up to to a the within $XX.X from quarter, deliver early are $XX.X third manner. quarter, operating for pace to gear record investments as decreasing operational X.X% and XXXX, second in from expenses expected in making customers maintain incremental our and a in and

$XX prior the quarter. income in compared million generated We in $XX.X net million $X.XX second was cash quarter million per the quarter. flat operating $XX.X activities with to share Third or from

of we $X.X stock million quarter, for charges million intangibles. to $X.X $X.X depreciation non-cash This and related of compensation, had million in amortization

$X.X flat open early cash second days. remarks. Turning at XXXX, Outstanding fourth grew in for million to $X.X XX to with by DSOs end debt $XX.X of questions. of quarter, sequentially quarter. million call payable result to shipments That quarter our in into $X.X prepared by days. Operator, XX million. another increased inventory million. the net days a balance anticipate visibility quarter, to the as XX heading increased $XX.X to increase in the from increasing fourth At we the timing million would the third days the $XX.X sheet, With remained million like concludes I decreased the had increased outstanding of and liquidity due the to inventory

Operator

our & Instructions] comes ahead. Edwin [Operator Company. first go question you. And Please Mok Thank from with Needham

Arthur Su

leave. your Hi, for are medical that hear actually doing Arthur Thanks and is after you questions on everyone. Edwin. it’s well This Jim for our taking good to

Jim Scholhamer

Thank you.

Arthur Su

takes So, are first outlook, revenue my just question understand on guidance. your puts in for XQ to is wanted the the and I what

I in fourth And one up think it’s your X%. talked key shipments customers up about think I quarter. of X% the has

wanted XQ? seeing of in are your you just to for what terms understand So, outlook

Jim Scholhamer

the Arthur. we are shipment-based thanks as doesn’t. little customers in Yes, and some always There our takes puts the our what up of even looking give, at and numbers there quarter what always that bit. is quarter lands Obviously, is being on a from

a there there lag be in as So, well. can

from numbers. identically typically So, don’t quarter-to-quarter they we see with their that match that

Arthur Su

on color mix and in think what between look like you Okay. the provide XQ? Can would you semi some non-semi

Jim Scholhamer

Yes.

have quarters. the much I it same been be It the been think several as over we changing seeing. will last roughly hasn’t

I jump think the saw that’s a semiconductor in out at leveling kind of those display quantum a numbers. and seeing And quarter-on-quarter in we of continues. high a same growth that lot we few now are quarters back

Arthur Su

Got it, so I for margins. on Sheri, gross the okay. have you a question

just I to wanted you being since you think there gain additional more share? mix, was if to try to And that on gross see I quarter. past benefited whether margins declined anything pricing beyond you from else mentioned are competitive think this that

Sheri Savage

of. out the volume, perfect as No, we quarter product really shipped was where quite the Yes. a well combination QX mix of as really with

So, everything well. this is really quite up very aligned where

to anticipate and occur. saw this that were like from in. that QX. good For is products would changed would us so last we high-end QX, for a the as still mentioned you similar be different shifting that QX, range perspective I of a still we think And We bit really just margin as see mix just that pricing our the still at margin a feel for range about of from profile range the I range as not I a quarter much really quarter,

Arthur Su

a the in just talked Got squeeze in, investments incremental it, could to one just OpEx provide color I business okay. little that? bit Can on more help more you you grow. some If about and COGS

Sheri Savage

will Yes, a system. off I with the are start investment making in new side the ERP OpEx we from

start for in will sets growth are as Jim see have QX. the for a the this as live We go spend up is well where about quite XXXX Really, side. incremental to talk I COGS starting occur and in talked about while to and it we some let us that of this

Jim Scholhamer

Yes, site color, been of extraordinary. sites, has In growth fab while year, roughly from have gone of of in dollars significant a and Arthur, of quarter seen a million wise. most to revenue little factories largest of revenue our a our we has the to year a the space the our across few quite one a that space actually Singapore add growth

huge to that able of out ramp been have facility. We manage a

We number new customer products, a tremendous both our from competitors. we new other have and platforms as have of on-boarded on-boarded

very now pretty resources start And plan. very, Singapore getting been manage amazing also XXXX. so strong to can to growth And we be what we’ve talents of our been skills for ready adding a and to a see and

Arthur Su

it. questions. Thank got it, our you much for so Got taking

Jim Scholhamer

Thank you.

Operator

comes question Cowen. Please Karl next from with go Ackerman Our ahead.

Karl Ackerman

just but on environment. investment I most think the question gave, last you current that sustainability the Jim, an is a maybe clearly the significant concern everyone. of you it Hi, referenced community

to and than – your for historically. for I guess agreements backlog display market towards CapEx as with longer-term So our thoughts you increase a follow-up your to and broaden engage stronger the I those move that customers tried visibility I’d solutions? much customers your especially greater Is your get is And basis value-added with on high sustainability please. in addressable a propensity quarterly given a that would specifically love you have on today and there mix to more

JimScholhamer

is address bullish one about what than more quarter Okay, semiconductor will very, will a the and visibility over the place going the sure. have have question, years. how looks will out even fundamentals the quite seeing it out and we we quarter confident we I forward. was would time it within difficult strong. change some And What for are typical – kind first. the than of past, mix around and it market exactly the all the see I out very say quarter. we more quarter, That’s but And we a are visibility see long next for much are think very can In and had market in next more that visibility the I sustainability quarter. several last very, always a change? quarter to semiconductor and lot, stronger a can happened this farther

maybe – pauses end down I but road, So, there all somewhere right that think market for there the conditions are market. the maybe

and we portfolio we we customers in agreements the global product that as the than looking are for those we deeper the that with far strong place do expand and display those supplier as and have into as we well. modules many display, in have display well, new opportunities bringing the in and our but certainly are at a CapEx, are and As customers’ position very always within of our in platforms. have have we to at display multi-year in area tools ripe, penetrating opportunities on more in display looking It’s expanding semiconductor market, always much do new

Karl Ackerman

acquisition Thanks. Miconex the in that market. was go Understood. understand share we follow-up perspective But could curious, I And just do chemical forward on your a bolster today the hear have a opportunity market you from you Where if in thoughts you could basis? on that helped that. if I just delivery, on market I position think are your in

JimScholhamer

Yes, good question.

company is space not movement the obviously on and of strong think for was space, years in our that really pretty stable. I part a remains core time, there us, That it’s portfolio. for of good a from our share stable. lot very of anyone very Over many that

of we vacuum the modules transportation lot make different Our hemispheric the front-end is talking of that new past transportation growth all biggest I’ve the about in the area modules, modules. such additional a modules, the calls as modules modules, been

the tool and semiconductor to adding chemical pieces So we gas relatively and as on of the are customers’ side kind we more delivery the see side stable.

Karl Ackerman

you. Thank

JimScholhamer

Thanks.

Operator

Schwab Group. go Christian from with ahead. Our Craig-Hallum next question Please comes

Christian Schwab

Welcome Ms. good Congratulations, back, great. Jim. on Hey, quarter. a Savage. Congratulations

think As probably CapEx ‘XX best the has XXXX $XX Jim, world Xx we ‘XX. I to up at mean think the I sustainability accelerated billion average Applied toward, look Materials be the to and front-end question, display levels and levels through is on I going following than wafer previous look greater they in think,

about So how revenue, to a I the X or capacity approaching big talked billion your be we year in I X.X appear being congratulations, be that place? the years guys run-rate, kind am ago in at know what because could wondering come is just you $X able company for that. with infrastructure to environment, of

JimScholhamer

lot more have an you we too capacity incremental of significant. that we Yes, of that had, movements as Christian. Thanks, it not a see are Yes. certainly the

that capital as large far shape we are adding and good tend resources expenses, So, we It in pretty this time. tend buildings and to to tends other as more add be we those at be to incrementally. people

adding more typical. have been it’s than in lot However, we a Singapore obviously been

I next believe is be be think to in I this that that a have something out called adding level will incrementally but capacity don’t something is the see it it’s us will we you So, – that to doing, way. major anything

Christian Schwab

me guess, I question. the rephrase let

have infrastructure about kind So, people, million to the we to generate you where some in add of quarter? plus $XXX million this place talked do quarter, a potentially $XXX need just doing we would

JimScholhamer

Yes.

Christian Schwab

$XXX plus million quarter? a

JimScholhamer

We will quarter. make $XXX million a

Christian Schwab

you, Thank questions. other No Alright. guys.

JimScholhamer

you. Thank

Operator

[Operator Instructions] question our from Stifel. Please next go And with Ho comes ahead. Patrick

Brian Chin

also me welcome ask is Brian a back. for calling Thanks in this few Hi, questions. Chin And for Patrick. letting Jim,

a in level, the as of first semi now is So, has from effectively question X year it’s have maybe fixed question my – that costs kind some to X.X of first time given revenue business to you transition nature. elevated might just alluded years’ cost in doubled of gets revenue top variable to it whether and your kind curious over that

to some be what see So, to have you and I am just costs might that model, turn fixed? kind yourselves going if of kind of through process the impact looking curious forward these if variable the of

Sheri Savage

of that’s need kind of be a We a that having to somewhat and in key is move on thing business. Brian. happening based mean, Hi, to down cost what’s model variable of This I industry. Yes, say our the would to Sheri. able I up our model,

as thing that incrementally The become cost, we So, changing. I growth the needed something obviously if see that’s and that don’t but we to said on. be would forward add do question necessarily as fixed decisions potentially additional that does Jim in something that’s capacity make continued a we last only move

with that are careful any to can adding in that flow and as very general the generally cycles are ebb we So, with well make as we infrastructure headcount sure happening.

Brian Chin

for getting thinking becoming integrated of business, scale just of referenced you the various you time strategically. guess, existence increased the taking the business guess I I and nature bottlenecks helpful. have your stopping just and in That’s short Sheri. of vertically prior supply And also lead On the what’s components. about are Thanks, chain that calls, you business structurally our from more a Okay. approach?

JimScholhamer

So nothing the stopping. is short answer there

years our pop cables never very some for types Those to a things things of integrate like now capability. and from wise, industrial As strategy chain. necessary the makes your are part a quarter-to-quarter. of types and been There fact, sense that matter either prudent many we have that more other vertically and that’s of are broad have products get supply They or of fabricating managed house. very, in own to up those

Brian Chin

quarter quick kind here. of Okay, $X several past last now, per steady a with $X quite lower level got million it. but kind the acquisition. up so been the over Again, real Maybe fairly leading question of have businesses years kind stepped a million, several bit years, the for that’s percentage R&D of has

the opportunities help maybe your just spend you increase of you in-house that any IP to more a bit of see own So, little if time? are customer over kind might there your broaden out R&D of develop base rate to wondering even

JimScholhamer

Yes.

know, are company. you As product not we a

in towards capabilities focused towards quality our R&D focused and mainly So, is the and bringing the operational cost excellence delivery. efficiency latest technologies

So been moving a yes, nothing are you that the money little in is are company a company been for highly you contract way would the nothing up that complex, bit, that spending amount of considering which kind company. has manufacturing a the of needed of similar do dramatic nor needed but we we a type for we’ve

Brian Chin

Okay. Thanks.

Operator

Dick go our Please ahead. Ryan with next comes question And Dougherty. from

DickRyan

Thank you.

with outsourcing competitors way? your that strength maybe the Jim given talked moving strength in Are industry seeing there. and about business So of you the continued you bottlenecks some that the overall

JimScholhamer

some modules in-house it, customers process where do mostly the they Yes, capability, want of the at outsource bottlenecks we – that’s pace area, an capability critical moving our far such bit actually been of for process a to accelerated in-house as we recently so that lot chambers. had the make are a they as been, have as business room more just with

few have were their other that customers them has been competitors, a issues wins of they’re it’s from as our there than a having are some as we’ve there some we’ve those itself, of the but that well. yes, factor of and productivity far As getting outsourcing in less been

DickRyan

And and around other, is there Okay. in SAM an on you some color any presence platforms comments? increased release you mention expanding customer is there those the put more did can

JimScholhamer

Yes, new not would dramatically of fabs. customer, of we it’s to that of Singapore, – The our up new – gone that I well. of several quite been number the are products but products in the continuing our our are introduced they into the – especially call been new but to as new new us. the rate and stream has into – rate, has that production a There say our is being is number

We in from pilot Singapore our in especially have schedule in quite plant. a to of production feathering high-volume

I be keep to industry - on up ramp, plant outside it’s huge of and their able to how top is quite really think huge when hold. ramp, quite is of that our through grow amount it’s startling been has with going product

DickRyan

Good, great. you. Thank

JimScholhamer

you. Thank

Operator

This back today. concludes conference I’d for our question-and-answer management over session any like the to remarks. turn for to closing

Jim Scholhamer

you, at our everyone to rest look execute With strategy a of intact on for you. fundamentals Thank Thank business year call the continue to we solid the again, joining into our forward our and XXXX. today. start

Operator

conference The concluded. presentation. today’s attending for has you Thank now

now may You disconnect.