UCTT - Earnings call transcript Q2 2019 | Ultra Clean Holdings, Inc.

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Operator

Good afternoon, and welcome to the Ultra Clean Technology Second Quarter 2019 Earnings Conference Call and Webcast. [Operator Instructions]

I would now like to turn the conference over to Rhonda Bennetto, Investor Relations. Please go ahead.

Rhonda Bennetto

Thank you, operator. thank joining and everyone, afternoon, you us. for Good Scholhamer, Officer; and me today Savage, Executive Jim are Officer. With Sheri Chief Chief Financial begin up the remarks prepared for questions. will Financial with business call and will Review open Sheri with follow about we'll then and that Jim the some

Today's forward-looking are statements subject uncertainties. risks and call contain that to

of assume on For please the to update SEC basis. to call. refer more non-GAAP of of and obligation estimates, today's after them our statements Discussion presented projections All we filings. to forward-looking in risk public today, our this assumptions as information, no are factors based and be disclosure will press on financial release. can GAAP A results be found a non-GAAP reconciliation in

be in in Technology and participating Davidson Conference Institutional X September X. will New on Dougherty Minneapolis D.A. Conference & the Company in Investor the finally, And September York on we

be of www.uct.com. the these on on Investor available information section Events conferences Additional at website will our

like call And that, over turn Jim? I'd with Jim. to to the

Jim Scholhamer

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

First, provide on will her and we I'll up I'm results that few a we open both term. our follow on an questions. view our and the near in perspective with industry, update on service that, commentary. the will Sheri businesses going product to call long After that highlight expand financial how for and

Strong team during quarter. of higher deliver for results consistently and period. than margins, second our our flexibility efficiency revenue, generation financial UCT's operational direct to performance to and our improved our with solutions robust dynamic anticipated the execution start profitability. resulted will cash customers commitment is solid our I a in steady result by this to

adjustments to the continued million the for activity $XXX.X conditions product to with weigh equipment from contributing second first million. remained memory relatively Ongoing business semiconductor business in capital slowing another $XX product inventory $XXX.X expenditures, on our revenue China and the excess services unchanged adding quarter With quarter. and our million, and business, market. respect Total our market was levels

IP we overall near Geopolitical customer and concerns on and our term. better expected, again and tensions pull-in adding in orders. to late-quarter product executed uncertainty business That than drop-in unexpected the are performs aside, the

Our to team to able customer in the solidifying and flex supplier as schedules, strategic was a delivery position further meet key chain. value our partner

something seen remain additional take levels support rapidly inventory to expenditures capital in advanced road producers of led well While technology unusual cycles. balanced the in maps, previous not persistent we memory have wafer output, step of adjusting elevated

as term of Adjustments should will are our business like The viewed in reduction this be help expedite and positive the the quarter. demand in and output be temporary near in rebalancing services nature. to as in wafer expected they impacted supply the

a As revenue is by portion brief growth derived from base, a wafer in is service of the the installed remainder driven our reminder, start. while

the closely the anticipate be to to fourth wafer a degree more demand into quarter rate run returning expect but into quarter, align. normalized likely to third inventory the We will and and in lesser continue short-lived. reduction heading as supply a more We starts

As past business profile. very the financial our a positive on influence quarters, demonstrated services over has UCT's several

WFE reduces productivity great us tier IDM gives responsiveness, with top to our our flexibility, analytical solely spend. ownership. gives us solution increases confidence competitive cost higher will we our that peers and and footprint worldwide who cleaning on regional our Our of with technical improves stance total rely Partnering customers outperform customers' unlock

foundry from UCT were put Currently, driven the edge. rollout infrastructure and its that the level peers memory continue IoT revenue year. showing the remainder and all additions our logic by the for market the strength capacity and foundry, and continues few in in confirmed leading This initial the is at XG over AI, things remainder high customers establishing results, are by digest memory. spending, that the for occurring of to which approximately of the will we of and place logic of is The from derives Our past half anticipate years.

but confident integration about are there cost We the the In remain the initiatives degree reduction be will track. of a and meantime, remain recovery, uncertain upturn. our timing and on

goal profitability model are We improved with financial through and sustaining cash the towards significant operating growth an cycle. driving generation the with of increasing leverage, combining

time. down that our content the be requirements due will year. sustainable From drive on levels we remain our of and For the and term confident in for these durability revenue customers the Smarter the computing semiconductor limited third will have about we our to maintaining any point, quarter the growth from greater improvement phones, Until opportunity industry. higher equipment significant revenue we overall over we the second capital rest expect demand our of result view vantage timing quarter, visibility long somewhat faster memory in remain and of demand, the are oversupply. extremely clarity to around from and meaningful end

I will this term efficient summary, want to you for forward I shareholders emerges creating employees downturn, when call. value. their industry the to company our be support with updating and long more In our growth, tremendous a on continued next support UCT look from potential thank this and our

the call to over With that, turn I'll Sheri.

Sheri Savage

joining for referring $XXX.X over of I increase Thanks, be quarter. Thanks million, a today's numbers will non-GAAP total everyone. had and to good us. discussion, revenue the prior quarter solid X% a afternoon, only. generating In Jim, We

somewhat our in reduction products and our was division services drop business of Our customers our decrease service wafer fabs. a quarter accounted million. offset orders $XX business in and our due million $XXX.X employment a Late some start at to division contributed by for products in

XX.X%. display XX.X% notably from to reduced was SPS million includes and gross quarter. $XX.X labor X.X% with XX.X% SSP material of generated improved revenue, Non-semiconductor mix, Total slightly compared up to which first revenue, gross improved to due margin XX.X% and costs. margin or the

geography, influenced initiative. restructuring of before, As and can margins product concentration, timing shared and we've our by volume customer be mix

see to expect should you quarter-to-quarter. variances So

increased expenses $XX.X compared million last million quarter. to $XX.X to Operating

of As X.X% associated over was with Operating OpEx year. the last remainder of XX.X% the the the we prior the of the expenses of was revenue, margin slightly increase improved to to X.X% a XX.X% first DMS, from those acquisition quarter. for expect percentage and streamline majority in quarter versus The quarter.

compares compensation the our Margin been income quarter. SSB quarter. or for net million our non-GAAP X.X%. would was contributed $X.X for $X.XX from was $X.XX $X.X $X.XX, per SPS second earnings earnings derived per million. reconciliation, and have Based XX.X share share on quarter and If exclude share-based share million was XX% outstanding, from shares per we This last to of the

rate XX.X% quarter. to tax was for quarter XX.X% the Our last compared

see Going quarter-to-quarter. forward, in you to high-teens the we but expect our tax rate always expect to to as can be variances mid-

Cash for payments. Uses million DMS customer reduction the primarily the to payment long-term million from quarter. the $XX the the due ended with to $XX.X acquisition million prior of debt. million balance cash inventory equivalents, Turning included $XX.X and and $XXX.X cash our in of we of timing quarter, million was operations quarter $XX million an compared cash over $XX.X to sheet, last in and increase principal on

in $XXX Our the third $XXX million and EPS total assumes quarter non-GAAP and between revenue to range $X.XX. outlook of $X.XX million

questions. to call to turn I'd the for And with like operator the over that,

Operator

and [Operator Please Company. with Instructions] today comes question go And from ahead. our first Karl Cowen Ackerman

Karl Ackerman

My for talk hope Hi, first question, Jim I all WFE about to moment. well. I is and want just a Sheri,

and I your XXXX CapEx were the think being around think that? the $XX the fiscal about to memory billion that revolved recede in I cut XXXX. to industry XXs, for as insulation were how XXXX think And event -- spending WFE further the guess, about or you WFE. providers fiscal low we in guess, has of I get again, to profitability do

little get would maybe this then year, of of core you that quarter in to year. an perspective a Quantum opportunities I WFE quarter bit. would help you your both an talk and so core an outsourcing just XXXX spending bit perspective about But think -- incremental outgrow enable see incremental the and growth from that should DMS next a you

Jim Scholhamer

Hi, great. Karl. Yeah,

if is I question As far first around worth. what memory your -- as was think

you at a roughly on services obviously our that obviously, diversifies in But that think shipments actually as and memory dependence And some foundry has I equipment space. bit. XX% we're the those quite So the logic well. side, then look you heard, as of is if

think top on going of think very much more capital And I going baked of that, XXXX. in that's I memory been of in equipment the as being spend, into shell large at buildings regardless of more memory of the and looking the lot a

happening in, a think kind a been of that I the lot moves technology capacity baked additions. and regardless you're has already lot of the So downside of memory seeing are of

up, go important what at a XXXX, become the As see, we'd the outsourcing volumes When expect far looking than rebound, to trends as obviously. more I ever. towards think

of starts going as rise. space opportunity, in as we wafer a lot outsourcing of up a in service increase as think I business as So an for again opportunity lot see volumes both well well a as that

Karl Ackerman

the base in but helpful. through this road down. contemplate and given business also business, What guess beyond. own of and continuous as swift demand just current drive services That's your cost your to not to year, as XXXX now Earlier I your we take supply environment you reduced slowed outside action are map were particularly tough doing you the chain? improvement

Jim Scholhamer

DNS the as restructuring the Yeah. a integrating pretty Karl, that and businesses bought well we extensive and Quantum. as announced last time cutting we of cost

And of lot as $XX restructuring to reduction we've so of $XX footprint a world. -- around been of our million cost million targeting through annual the

to reductions done Leaving with factories. a the year well. We've some rates. of first saving very fuel the in kind the lot we those built into done and few end a closed cost expect of force. annualized along We've in. We've We've quarter, going the achieve

going on working we've that is on. everything announced the So been well cost very restructuring

Karl Ackerman

I one Very may. helpful. if last Perhaps one,

I'm One and and the in trade quarter. of see some of in if light last overall you Korea Thank about of any the you. business, in stability the you changes your landscape, within perhaps some comment if spoke how all, just how you that at -- changes the gas curious on competitors competitive gaining panels about imbalance. of share think would Japan

Jim Scholhamer

gas business, The relatively puts stable. Yeah. and it's takes. always are panel There

ASML the for of and ASML space. opportunity -- I as activity as And whole. our have serving the a very we're with Cymer also also our competitors seeing is directly position and strong long areas for the us -- think one many in increased that with are some seeing them main division years both a with ASML we of

comfortable we're with position. so very And that

new but providers So and are competitive it's not the takes, there I taking But space, some significantly are environment, and us however, which outsourced generally the are there other puts they're material advantage suppliers. between think but opportunities always a panels gas both of.

Karl Ackerman

Great. Thank you.

Operator

Quinn And question from Bolton go Please next ahead. comes Needham. our with

Quinn Bolton

Wanted to see, to you really there couple this performance. just margin got Hi, you quarter absorption better of guys. nice start and programs then reflection the Congratulations better the margins and some on of the a or think of follow-ups. a starting restructuring benefits that of just revenue higher I've see and are

Sheri Savage

reductions benefit cost Quinn. the We're seeing starting Hi, some we we that started come see the stages, the bit we're of but that are making. Yeah, of to a of initial early through. little in

this in think ship. was favor I our that the we products mix helped the of other thing that quarter

a was earlier that Sometimes do that with down continue we labor certain but this it our as sites temporary hurting force. within and year. both we the a force take well mix have geographic reduction talk as us, better about to this situation We unfortunately did in we quarter

iterative should training starting that. we're bit it a an benefit but little of it's see to So -- process,

Quinn Bolton

And starts. the wafer the the second understand question around is the sort Great. and of business relationship, then quantum

but run more that then talked getting further QX. back in You third rate to declining quarter, in about levels the

in terms as the Quantum would business of in thinking We the fourth the be Just that first snapback run should the too did only kind history. When now about that aggressive Or you rate, in under and you potential or what owned a you've year just say lot a you levels wondering, don't of have that in -- business? in rate? that quarter run quarter as for of so. define we is

Jim Scholhamer

memory that's pretty full correct. down and operate Typically, a on cycle. a fabs at Quinn, capacity typical even no, through Yeah, much

the So the capacity did. to is wafer a in actually starts like drop pretty unusual utilization they step

have So we've for a owned we business year, even obviously historical. only though the

to event. unusual pretty typical our expect memory and is utilization expect a where the we the will cost probably and what get can was the fabs also that better that back customers return full But So points bit. per what operation they

Quinn Bolton

that on got. my the business And was last quantum you've question

really -- more business? you I right? customer wafer the Or wafer logic decline base, customer commentary on start customer, starts I the on the think and side focused a across the too? a major of assume major see memory logic did is the memory

Jim Scholhamer

very of was has actually memory logic the side, the well No impact been which lot offset a from and the doing actually significant.

Quinn Bolton

specifically, Sure. And quantum business? this Jim, the is for

Jim Scholhamer

Quantum business, yes.

in the the that And there. has great in That business memory. the been we the start results correction right that's of aware the well growing very quantum doing as So nicely. in Correct position offset some service -- is from of logic industry I that with wafer saw negative business think everybody memory been now. that

Quinn Bolton

Got Great. you. Thank it.

Operator

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

Dick Ryan

Hi, of you degree you. Can mentioned you in order of give and QX an you what saw kind this pull-ins versus magnitude drop-in again Thank quarter. QX? of Jim, the in

Jim Scholhamer

in but greater we is we -- down than quarter. net two even is was like that drop above we saw pull-in, order what more called hi, bit and two we over Actually push-out that in was both arrows about Dick. result last and -- little the first And churn the arrows and Yeah, actually That a what would -- out. what was is going drop-in talk pull-in even than cancel in out. was quarter happening all churn, it saw in the higher than the I coming

of critical, chain lead and a lead making as quick times the really area. in supply our really or that needed the niche in lot supply to basically adding upgrading quickly is really as end-to-end capacity they're chain are those very customers there's or faster for required times the So faster to ability becoming outperform relying areas by to seeing so allowed decisions the us react in we're on that reaction being

Dick Ryan

integrated been fully Okay. DMS has yet?

Jim Scholhamer

continues. No, very, the it's will integration it but very third The well. quarter, the majority going be of done through

Dick Ryan

-- But thing a major out the two you up or one volumes pause customers? the in trough we're what trend what's And increases outsourcing. situation, outsourcing last now sentiment when a Okay. pick mentioned, towards in your

Jim Scholhamer

it's -- two major bit customers the differently. Yeah, a act little

the pretty is there out own more them actually little a of a cycle. to more regardless -- but activity is of major is much a One other and ceased towards they flow to outsourcing where tend in in of back bit their a factories, plodding flex the are one amount, of more kind outsourcing, much pretty even not sometimes slow is of of we or

bit acceleration differently. saw in we'll you So tremendous outsourcing. ramp expect digits. the last they and double during similar in would And saw high definitely behave a see outgrowth. little us see next outsourcing ramp But I see We the -- you outgrow WFE by we'll

Dick Ryan

you. Thank Great.

Operator

question Patrick And Please from go ahead. Ho our with comes next Stifel.

Patrick Ho

much. a very just to trying just I you reconcile Thank things. -- Jim, few

cuts you're hit. to to a that what cost the terms you given guys these to done during ramp to you churn time? talked the about. will Are that you've talked select ready you the are the I in that at be the then credit how costs sustained have that cutting reacting potential time, of At same a sizable up demand as think past same in meet recovery over some it's about comes of quarter, when quarters, few implementing you you able

Jim Scholhamer

did build in The short built force -- 'XX. scale temporary A yes. is is workforce, to the and like reductions of Yeah. in ramp answer fast fast we lot in for the are which

is we're As of and changes around products far the lot scale like globe. of that right the as the consolidating making, it footprint a spots in getting

we and be we consolidating scale when at that our and least think started lines right we're do as and we good we where capacity actually certain end to do least done at think the them, of we the as the even at will day -- and perhaps -- actually putting So when product better.

Patrick Ho

centered stages Great. follow helpful. expanding question a is are early looking That's you up few I still DMS just ago. months obviously front? What guess look around customer that on given my today? How they're that in customer acquired the you you're that at to base are of their customer taking base at the expanding things on weldment side predominantly efforts the one on

Jim Scholhamer

The of a think capability, customer the base. we even overall today. don't we diverse it our of think capability redundant where the weldment was majority have DMS, of I with pretty capability Yeah, do

we pretty So our diverse have customer with to continue a base supply, weldment. good

is of weldment, of way one that diameter outside we think large unique the did. I didn't the the in the weldment some the in opportunities have is capability had that they areas same bigger DMS

that using, but especially that, additional able ones. across just So to and be opportunities Asia not was but to UCT we to offering to their also the was customer expand see current bring led serving, product DMS and

in of areas. more expand So that it's I where a we product think can our

We weldment. for base customer diverse have a

Patrick Ho

And things. you intensity panel your NAND, trends Jim, you layers for more in of maybe of the some business delivery me, systems lot as, guys the you of more within some more simply themselves? volume more final that Are etch, about Great. you seeing side layers, more or need increasing and terms of that such tools question a Is gas tools. There's intensive? aspect the the talk more in applications then help deposition not it XD a of more need are tools potentially content with because increase the of capital high also the ratio those applications of tools there which volume will you, but help of content only some complexity are of

Jim Scholhamer

tool indicator of question. is a a panels process gas a themselves thing. are Yeah. driver going required is That's door of chambers required. key Obviously, number the many is key per and how tools good great The out a

and layers that stress is absolutely, benefit populating of more process layers get steps a capping layers as or us. definitely sacrificial are additional are tool, needed for are chambers layers So more and each complicated

Patrick Ho

you. Great. Thank

Jim Scholhamer

Patrick. Thanks,

Operator

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

Christian Schwab

all Hey. questions Great. answered. been Thank Actually, my you. have

Operator

over conclude question-and-answer This Okay. closing conference Jim the for to will session. I'd like our any remarks. to turn back Scholhamer

Jim Scholhamer

joining Thank us updating third quarter we conference here call. you. Thank to look and today, forward you for the after you

Operator

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

this disconnect You may day. a time lines great your now and at have

Ultra Clean (UCTT) 31 Jul 192019 Q2 Earnings call transcript