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UCTT Ultra Clean Hldgs

Participants
Rhonda Bennetto Investor Relations
Jim Scholhamer Chief Executive Officer
Sheri Savage Chief Financial Officer
Karl Ackerman Cowen and Company
Christian Schwab Craig-Hallum Capital Group
Call transcript
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Operator

Good day, everyone, and welcome to the Ultra Clean Technology Third Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask question. [Operator Instructions] Please note that today’s event is being recorded. I would now like to turn the conference over to Rhonda Bennetto, Investor Relation. ahead. go Please

Rhonda Bennetto

after materially turn actual with our replay Good today’s review. how of to with along call, XX-K press concerning like uncertainties to the no forward-looking us. relating release Today’s and Phil. Officer; that in I’d Jim? press risks call. to information today, and today’s over as measures you and involve be Information measures, GAAP call update and cautioned the results on discussed follow with can The that, press adjusted assumptions on call, release. access will webcast this call are with management’s to call forward-looking thank Sheri these on found and and to are a business, call. questions. SEC, section today’s about Thank based of obligation financial call. website in risks found to issued Sheri be to for Also uncertainties we we’ll them the non-GAAP and and will UCT Relations me And afternoon, filings open differ of projections on are referring XX-Q assumes estimates, today’s the be joining will Jim. statements this this reconciliations to about can release and begin these Jim recent afternoon, Officer. periodic contains Form and With Chief the contained Investor the from Executive is may in those prepared at that All our most Jim for including remarks Investors statements earlier the Savage, statements. our www.uct.com. the financial you, with Financial everyone, some Then Scholhamer, and the Chief up cause

Jim Scholhamer

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

will this a cover second acquisition. our will so with and acquisition such was today, an our my newly quarter to to a have why our market let lead ours. results play role customers update our on UCT touch commentary. and expanded will begin on financial and thoughts Sheri on expand timely Technologies’ partnering To in with significant on share industry, the I Global success reiterate Quantum end lot We conclude, to ensure that me me critical her will their That and our

update and to X, acquisition, positive adjacent October on Before important I business, that why the in transferred fire joint was production our venture in facility had about volume I’d facilities. like the talk you Quantum’s to expand that a On an majority been by of impact mid-September. on was to such this announced a damaged we Korea

than pleased to been I greater has reached today, As that am of of Cinos positive. very original and report XX% production capacity has feedback customer

be coordinated importantly, associated of total and customers at reviewed project meet their and revenue the we future with with will to decision ensure capacity our million. that are when will $X be rebuild the additional More impact around UCT for cost The being to needs. to minimal,

While being was from more a come larger, incident, unfortunate advantages the it company. that diversified this serves to and highlight an global, untimely

to together, the to partner were or there with minimizing We are achieving the I and Cinos, and associated remarkable no impact UCT dedication to incident issues JV grateful manage fire. assisting rapid personnel, their to and importantly would everyone a that production, our customers. no our the and like environmental and production for involved resume work impact other injuries Quantum thank commitment recovery.

the the can expect. our and customers of acquisition highlight what like other Quantum to benefit a I’d advantages of Now shareholders and few

other an Quantum now and recurring majority. OEM and important top-tier representing UCT a critical our position. services. existing in coating suite the for global solutions business performance strong provided to billion As operational gain existing business addition chamber revenue of we exact are summarize, cleaning market services customers services. opportunity capabilities excellent to with to as the integration parts vertical reminder, begun complementary to Quantum analytical UCT for have as profile. further to ecosystem, where tool a leading Quantum’s well presence fab financial customers, service semi our In IDMs $X micro-contamination semiconductor a provides works outsourced transform addressable require and partner. IDM deliver and words, adding added to Acquiring have both complements To new Quantum’s copy to Quantum high-capacity semiconductor is serve stream an UCT core of the allows as another our a UCT our that component within holds solutions. capabilities already with

sustain conditions market for strong variety We solution growth. a our performance spectrum under us platform are and highly now gives of a customers. a and great one-stop, for our future confidence in full integrated, This to diversity ability provides breadth

cycles, stream. Now base to revenue have start, I’m business. is more to solely WFE than the we rather and is cleaning even to combined need extend continue in will positive on semiconductor Quantum’s a their equipment serve equipment. business. switch capital to wafer stable going potentially as analytical our a economic having to declines, lives spend, durable, positive tied and or capital Quantum financial creating will of that more companies move-out recurring impact This now Because legacy resilient, the services spending semiconductor When revenue installed fluctuations and WFE in and equipment increase

need and expanding and Additionally, parts more cleaning. contaminant shrinking minimize to chip the requires often frequent geometries increases complexity

where revenue next-generation quarter third was recurring IDMs look result, importance our becoming services result the and guidance. to continues quarter Quantum, to a revenue $XX as addition the Including To OEMs and of $XXX.X evolve. see should diversified solely to going base benefit struggling of tied to UCT semiconductor timing spend. been that the capital are to third installed start only million as versus validate is peers had stream, contribution fourth as for five investment, CapEx to and adjusted devices more quarter to having of far a critical adapt end-market that consensus of a Quantum million, WFE only Quantum’s you demand forward, Quantum. need to significant wafer above As thanks revenue are include a weeks time total At

results margin Quantum’s forward. operating in to operating going model higher-margin free addition, In accretive flow was quarter our third evident to UCT’s should cash be continue and and

broadly integration business, have As we taken efficiently, expect several our and optimize our business needs look manage To further improvement profile profitability. market looked actions see to business the cost-cutting equipment and ongoing we we finalize growth to in our our and as our softens. at have

have shareholders. intersections growth faster increased And divisions natural work should OEM manage allows created customers Both position and business continue and with the solutions have line to help connections for fast-growing The cost profitable divisions, this, our and semiconductor performance. This efficiencies support these and redundancies in global We and customers, our comprehensive and To organization secure divisions for we’ll and with business changes products will sustainable, our service needs. closely and decision-making. company-wide business solutions. to accountability IDM have semiconductor minimizes leading business financial returns two with market. in in business for overall, drive excellence the semiconductor and high developing operational we creates drive together

my and share we sentiment. market to like I’d negative investment is believe what on driving thoughts the environment semiconductor community Now

magnitude. of in While that supply-driven to is pause start modest semi be digestion we to similar period feel it downturn, may will some relatively cap this major the another that believe

broadly. elevated past the equipment and from and UCT of multiyear stay semiconductor technology in at couple in Over intensity logic, device required years, semi as the and end-market to level the inflections capital supporting is leading-edge positioned demand growth. remain Underlying levels, requirements purity of continued the continues well well increased drivers as foundry memory to spend benefit robust, more

as think Internet we vehicles, applications the all intelligence support artificial emerging to agree I inevitable. the are such economy high-performance computing, Things, and that data-sharing technology of autonomous

manufacturing from XX-inch believe manufacturing and be and elevated the demand market Next-generation as business remained demand OLED expanding strength and large-sized patterns. as segments design of meet long-term creating the solid and TV lastly, XX-inch analysis expansion towards when to contamination for needed super our And spend Gen quarter Both capacity display a From cleaning whole will compelling come to adoption well term. architectures XX.X in as posted market, opportunities non-semi compared in another will both TVs fastest-growing parts the the on LCD the the devices chip and materials our perspective, the more that XX.X. TVs. are the historical long Gen systems equipment in appetite over transition overall the makers and for and micro are display

demand, lower outpaced we capacity see period for shorter-term. causing OLED a temporarily the display out, has where outlook Looking over a

levels. of is pleased a equipment revenue, respond summary, the will our we above and business portion display expect Although historical execution environment. challenging we revenues during with In to our the ability manufacturing this are small relatively remain

approach. I’ll and capturing over execute customers Sheri. to and segment With our balanced technology the inflection. for on of turn a relevance with value have shareholders. call With we address strategy we resilient strategic will to we market capabilities, the of addition that leading business, success the We expanding focused and that, and a to are across next-generation disciplined customers, our our continue creating committed our to services By better our our the increased remain

Sheri Savage

million meeting in offset And and our revenue delays Thanks effects lower XX.X% from discussion, for to of third business the of non-GAAP business, margin Quantum Gross afternoon, our by well everyone. line. Approximately last which and and today’s UCT the capital I XX.X% to at revenue The was XX% equipment quarter reduced revenue by within from factory exceeded in range offset good joining $XX.X quarter. consensus non-semi X%, our XX% Jim. addition cost. semi while targeted revenue came weeks executed million from spending numbers the of be the of In operations. Thanks, revenue and material display. only. will to bottom total referring five to includes of $XXX.X in Total us. Quantum utilization, compared was nearly our weeks due helped included on five semiconductor consensus quarter

the revenue, our to look quarter During for continue adjust with and closely we to to to our we’ll steps align more workforce operations. ways took optimize

concentration, X.X% you influenced geography, As volumes, mix the variances of compared we’ve factors, to for customer product were expect and including of and a revenue as shared X.X% should to a margins expenses quarter. quarter-to-quarter. be Operating can quarter last see percentage before, number by

Quantum. rate margin volumes. reduced reduce closely we actively business and of match quarter more to spending core expenses at run can addition ways reduction in to our UCT third While The across X.X% are prior we quarter. offset tied in the the X.X% our be Operating looking operating in the quarter, decrease was by for overhead revenue, compared to COGS, to further the the

We and a are environment improvement. organization operating dynamic to operations in our have implemented very cost within of the cost affecting drive changes

are efforts $XX.X quarter and line bottom million delivering outstanding, $X.XX, top over share quarter. line growth and earnings $XX.X line net long-term. million. last with million net at third for that the and consensus aimed mid and creates XX.X Based of income per per on short, balanced derived shareholder This the shares to $X.XX Our in share income value were from compares

tax the always, Our variances But be to expect mid-teens expect XX.X% the implications forward. the as in Considering of our now see to quarter compared you acquisition, to was for we quarter-to-quarter. Quantum can the last XX.X% tax rate going tax quarter. rate

to we ended shipments balance $XX.X of to from this and over cash equivalents, with of cash Cash million to by and decreased $XX.X cash Turning million operations $XX usage prior sheet, increase quarter timing $XX.X last compared quarter. million million the in the an $XXX.X due of quarter. the Inventory payments. quarter was million

optimize to our demand continue forward. to level match closely will We going customer inventory

capital to over stream the quarter and point to UCT to installed resilient equipment be a made guidance. that midpoint overall. start, for the than third the the rather base using tied recurring X% This fourth business outlook quarter, more company Our spend, revenue earlier speaks is revenue a volumes Jim wafer total WFE of almost makes our calls semiconductor having up that

be we bottom line, third the to minor earnings the to below headwinds initiatives flow-through slightly expect of our For cost levels. timing anticipate some related quarter reduction and and our

leverage. business the line be Jim turn for couple our quarters the of As to I’d over mentioned, integrate like call operating questions. next services With realized having will benefit fully and also we over higher-margin as a bottom of the should that, the look additional for operator to real contribute to

Operator

and from with We Company. Please Cowen will first question-and-answer session. Instructions] Ackerman go now ahead. begin [Operator The question the comes Karl

Karl Ackerman

afternoon. good Hi,

for question Because an your business trajectory for flat be roughly follow sequential December? would therefore, would you well. sequentially services business it clarification apples-to-apples implies I guidance sequentially appear guidance. First, And your also or the I had your as And a a that up, seem describe Jim your systems Sheri, business could have basis. of flat please. to overall on

Sheri Savage

XX% we’re to so the Quantum from seeing XX% of our revenue about Yes, acquisition. guidance coming

So versus that some Quantum. what be you business from total idea core hopefully the UCT a gives of would

Karl Ackerman

Okay, be love to does looking imply chemical subsystems in you keep what stages XXXX, expectation into if were even suppliers I’d sensitivity customers I to should to hear key as further, And of XX% about incremental as from Thank conceptual QDT say, you. I thoughts WC? appreciate that. who revenue guess, merchant I hypothetically, opportunities, your I services other on extend to gas particularly that like appear Can early outsourcing the business? to decline your and to for well we grow think yourself. or it? X% it year, your flat or guess, for still WFE next guess, that key how that

Jim Scholhamer

Karl. Hi, Yes, one take at I’ll them a Yes. time.

Quantum that certainly something on. we is are think the growth I So focused of

well in years. to we’ve the As organized has pretty and of even from Quantum in that. very do growth, been longer use performances order saw decent divisional Historically, anywhere flat to WFE downed in basis range WFE you downed performed recently, and

single something think out range or we’re the the to so, high for but a obviously, feasible. for if think I services that’s XXXX So businesses, digits certainly guiding in flat not percentage growth of you of

follow what As as Is the quite the that question, WFE about? that, equipment second is I’m I far sure question horizon? not your

Karl Ackerman

were or sensitivity? should it? that if it. we can how you WFE next – you about No, grow I year, think flat decline even answered business the But of in keep your to actually sense think And services

Jim Scholhamer

Yes.

decline. about you think, flat a even I situation think I business, think think WFE when or a in significant declining – that’s I Quantum a

a it’s WFE Although lower possible even spend. a to on – on significant grow

Karl Ackerman

Perfect. I’ll leave floor. the

Jim Scholhamer

Thanks, Karl.

Operator

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

Christian Schwab

percentage maybe On Great, think then versus of thank business XX percentage just estimate unit a the a of And of front-end wafer kind foundry trailing what you. of that driven? side is give combined on rough can memory? your basis, roughly, you on us you is a logic business,

Jim Scholhamer

what to? unit referring do business, – you Christian, when say hi, you you When say you what – are

Christian Schwab

predominantly Well, you guys talked unit about the Quantum driven. business being

assume So should business their driven? entire is unit we

Jim Scholhamer

like IDM, mean chip You driven?

Christian Schwab

Wafer-start driven. Right.

Jim Scholhamer

also Yes, driven But it’s business wafer-start half driven. well over a Yes, the still portion of there’s is chip. driven. that’s by the significant OEM IDM

Christian Schwab

front-end Okay. the exposure And you can your to idea is of an just on what have then wafer side, – memory? do

Jim Scholhamer

it’s I along our major and applied customers. lines and the of think Lam roughly

it lines So I but major it’s our roughly year, don’t it depends percentage, the on know customers. the with up so –

Christian Schwab

linger Okay, short seeing period it of containment, could an doing cycle, perfect. time. you’re potentially would than more just And kind potentially cost of on obviously, we’re then elaboration short, what and long term in mid- signify the a

calendarized Are that on calendar to a and basis expenses XXXX As positioning to guys be running down If it’s looking at on assuming there, great. flat, business are X%, operating clarification – you you any are XX%? to a XXXX, your us from you how give down could front-end wafer your that’d spend? modestly you

Jim Scholhamer

Yes.

better get you right we as greatest point this and I cutting are think not we the visibility. in QX, did is know, as visibility, costs at we The now.

cutting as go. we cost So are we

to cost visibility. as continue we more We cut get

of that roughly out. have position where the WFE I we to the industry same going many – is a think view the than least being. what we’re to as bottomed don’t kind or I we’re another be a in spend level but basically percent direction it’s few time think – more one the in very It’s the for difficult for in at that is, ascertain

a this making range take So to and for we’re get integration believe what cost – of next of to and advantage of and we’re that kind with in side of of Quantum coming. long-term of taking to a ready industry assuming of advantage out we’re that the when – well. as lot the in with getting really do grow balance roughly and a drivers in that the upturn that cutting, this we are we sure our work trying And some trying time benefits when visibility that’s lot on to we’re lot

this spending doing when we’re optimization of time So a continued lot cost-cutting, both of overall also of our lot business a from divisions. structure

Christian Schwab

Okay.

bit is September than the December better. the little the to Your is largest you second that be previously half XXXX. That a first is has next the of half customer greater of said year calendar going bottom,

you of at improves would to kind level next million kind on a mean of kind your there? market of go-forward $XXX a to at from be that to expect this basis running minimum up million year does step be and the So business if $XXX

Jim Scholhamer

guiding half. would Yes, to expect not first I – follow we But obviously, mimic our we’re think out customers. exactly for don’t the yes, we

we business are working favor, especially a and which percentage quarter-to-quarter. And But there us that some I in that’s is between very few our a assumption. well safe have differences roughly now, from differences a yes, Although, do service cause them. think points

Christian Schwab

No other thanks. questions. Great,

Operator

with go question We Karl Instructions] and Company. follow-up Please ahead. [Operator a Ackerman have from Cowen

Karl Ackerman

Hi, I of your XX% about Thank a your in you outside we year-on-year? think disruption your revenue the own potential chain of standpoint? relative think chain supply a escalate supply with tariffs the event exposure to how What’s pure Sheri. U.S. from to know on in had the Jim should continue previously and you. and focus of Singapore manufacturing China. target I a But

Jim Scholhamer

able been to Obviously, few we’ve which manage. of in those few a experienced disruptions Karl. we’ve Yes, quarters, last the

global advantage, within We – supplier we though. a regions. manufacture typically and as service big We’re a being is up set

can where to into areas cross certain able Where don’t where moving we have from mitigate it. around had to a have we tariffs been by we borders plant lot production relatively play, we’ve seamlessly. So help another of one come them

it’s been material already and no expect we it. happening had don’t that’s So affect and

Although, know material well. down tariffs any impact new may as we anticipate line, don’t what don’t the from legislation going forward we come

Karl Ackerman

at there’s time, acquiring in environment guess one companies display one within about your of in you chain? business, you. one, supply traditional it’s if the one environment changed may. in smaller last is Perfect. do I How the particularly if over not? who least do we the competitive I your or the where process nonsemis EMS from How Thank think peers about competitive of particular think all at

Jim Scholhamer

Yes, see don’t Karl. big We change. a

– We competitive we’re actually we provide on in are not – overlap lot of there’s a that what market.

we So the as closed yet, change on actually, in not see it’s and acquisition, display believe we that of business potential really don’t going side. a result forward I any the

Operator

have Group. a with follow-up Schwab Capital from question We Craig-Hallum Christian

Christian Schwab

Sheri, the on me go remind the that can on at just And forward been low gross range the margins, being still you can you tell of same as high would please? Is basis? expectation your the end of be, of quick takes a and it what puts me using before? to we’ve end what is some

Sheri Savage

update the we now acquisition the forward see Quantum potentially we do with that move the for as XX%. integrated, Yes, we’ll we’ve year. XX% and our same model Obviously, having in range new to that had, the

customer the the mix I’ve shipping location, as puts geographic obviously and from where a takes talked are concentration. before about is really and Some volume, things of

really the things. are those So key

those probably the are plays that the volume But I factors significant think help key now. most us. think I right

Christian Schwab

historical that’s I kind what can of that or other than that new isn’t that’s thought. Okay, move going anything There reasons. dynamic

Sheri Savage

Right.

Christian Schwab

you. perfect. thank Okay, Great,

Sheri Savage

you. Thank

Operator

any the question-and-answer for to back to concludes would this turn Seeing like our no further remarks. session. questions, over closing conference Scholhamer Jim I

Jim Scholhamer

you new and – we Yes. on for for forward QX look the everyone, Thank to – updating year. you, in us, in our joining

Operator

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

You may now disconnect.