Ultra Clean Reports Second Quarter Financial Results

HAYWARD, Calif., July 28, 2022 /PRNewswire/ -- Ultra Clean Holdings, Inc. (Nasdaq: UCTT), today reported its financial results for the second quarter ended July 1, 2022.

(PRNewsfoto/Ultra Clean Holdings, Inc.)

"We continue to see solid, broad-based demand for our diverse portfolio of products and services," said Jim Scholhamer, CEO. "This diversity enhances our competitive advantage by increasing our resilience to fluctuations in any one segment. Together with our ability to partner closely with customers to respond to ever-changing market conditions, we are well positioned to continue growing our share in our served markets."

Second Quarter 2022 GAAP Financial Results

Total revenue was $608.7 million. Products contributed $532.0 million and Services added $76.7 million. Total gross margin was 19.4%, operating margin was (0.9)%, and net loss was $25.1 million or $0.56 per share. This compares to total revenue of $564.1 million, gross margin of 20.2%, operating margin of 8.1%, and net income of $27.9 million or $0.62 and $0.61 per basic and diluted share, respectively, in the prior quarter. The financial results for the second quarter include a $56.6 million pre-tax loss related to the divestiture of certain non-core subsidiary entities.

Second Quarter 2022 Non-GAAP Financial Results

On a non-GAAP basis, gross margin was 20.3%, operating margin was 11.1%, and net income was $47.4 million or $1.04 per diluted share. This compares to gross margin of 20.5%, operating margin of 10.9%, and net income of $43.3 million or $0.95 per diluted share in the prior quarter.

Third Quarter 2022 Outlook

The Company expects revenue in the range of $585 million to $645 million and GAAP diluted net income per share to be between $0.32 and $0.55. The Company expects non-GAAP diluted net income per share to be between $0.94 and $1.18.

Conference Call

The conference call and webcast will take place on Thursday, July 28th at 1:45 p.m. PT and can be accessed by dialing 1-844-826-3034 or 1-412-317-5179. No passcode is required. A replay of the call will be available by dialing 1-877-344-7529 or 1-412-317-0088 and entering the confirmation code 6271791. The Webcast will be available on the Investor Relations section of the Company's website at http://uct.com/investors/events/.

About Ultra Clean Holdings, Inc.

Ultra Clean Holdings, Inc. is a leading developer and supplier of critical subsystems, components and parts, and ultra-high purity cleaning and analytical services primarily for the semiconductor industry. Under its Products division, UCT offers its customers an integrated outsourced solution for major subassemblies, improved design-to-delivery cycle times, design for manufacturability, prototyping, and high-precision manufacturing. Under its Services Division, UCT offers its customers tool chamber parts cleaning and coating, as well as micro-contamination analytical services. Ultra Clean is headquartered in Hayward, California. Additional information is available at www.uct.com.

Use of Non-GAAP Measures

In addition to providing results that are determined in accordance with Generally Accepted Accounting Principles in the United States of America ("GAAP"), management uses non-GAAP gross margin, non-GAAP operating margin and non-GAAP net income to evaluate the Company's operating and financial results. We believe the presentation of non-GAAP results is useful to investors for analyzing our core business and business trends and comparing performance to prior periods, along with enhancing investors' ability to view the Company's results from management's perspective. The presentation of this additional information should not be considered a substitute for results prepared in accordance with GAAP. Tables presenting reconciliations from GAAP results to non-GAAP results are included at the end of this press release.

The Company currently defines non-GAAP net income as net income (loss) before amortization of intangible assets, restructuring charges, executive transition costs, acquisition costs, loss on divestitures, fair value adjustments, depreciation adjustments, stock-based compensation, certain insurance proceeds, gain on sale of property, legal related costs and the tax effects of the foregoing adjustments.

A reconciliation of our guidance for non-GAAP net income per diluted share for the subsequent quarter is not available due to fluctuations in the geographic mix of our earnings from quarter to quarter, which impacts our tax rate and cannot be reasonably predicted or determined. As a result, such reconciliation is not available without unreasonable efforts and we are unable to determine the probable significance of the unavailable information.

Safe Harbor Statement

The foregoing information contains, or may be deemed to contain, "forward-looking statements" (as defined in the US Private Securities Litigation Reform Act of 1995) which reflect our current views with respect to future events and financial performance. We use words such as "anticipates," "projection," "outlook," "forecast," "believes," "plan," "expect," "future," "intends," "may," "will," "estimates," "see," "predicts," "should" and similar expressions to identify these forward-looking statements. Forward looking statements included in this press release include our expectations about the semiconductor capital equipment market and outlook. All forward-looking statements address matters that involve risks and uncertainties. Accordingly, the Company's actual results may differ materially from the results predicted or implied by these forward-looking statements. These risks, uncertainties and other factors also include, among others, those identified in "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations'' and elsewhere in our annual report on Form 10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission. Ultra Clean Holdings, Inc. undertakes no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise unless required by law.

Contact:
Rhonda Bennetto
SVP Investor Relations
rbennetto@uct.com

ULTRA CLEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except per share data)

	Three Months Ended				Six Months Ended
	July 1,		June 25,		July 1,		June 25,
	2022		2021		2022		2021

Revenues:
Product	$	532,016	$	442,515	$	1,018,847	$	788,131
Services		76,681		72,685		153,994		144,696
Total revenues		608,697		515,200		1,172,841		932,827
Cost of revenues:
Product		441,119		367,919		840,658		651,488
Services		49,211		47,398		100,088		94,518
Total cost of revenues		490,330		415,317		940,746		746,006
Gross profit		118,367		99,883		232,095		186,821
Operating expenses:
Research and development		7,239		6,066		14,078		10,274
Sales and marketing		13,854		12,652		27,651		20,260
General and administrative		46,143		49,218		93,524		83,930
Net loss on divestitures		56,642		-		56,642		-
Total operating expenses		123,878		67,936		191,895		114,464
Income (loss) from operations		(5,511)		31,947		40,200		72,357
Interest income		125		59		190		157
Interest expense		(7,277)		(7,059)		(13,691)		(10,664)
Other income (expense), net		(365)		(711)		(361)		(4,974)
Income (loss) before provision for income taxes		(13,028)		24,236		26,338		56,876
Provision for income taxes		8,708		6,221		17,250		13,236
Net income (loss)		(21,736)		18,015		9,088		43,640
Less: Net income attributable to noncontrolling interests		3,357		917		6,253		1,545
Net income (loss) attributable to UCT	$	(25,093)	$	17,098	$	2,835	$	42,095

Net income (loss) per share attributable to UCT common stockholders:
Basic	$	(0.56)	$	0.39	$	0.06	$	1.00
Diluted	$	(0.56)	$	0.39	$	0.06	$	0.98
Shares used in computing net income (loss) per share:
Basic		45,176		43,328		45,056		41,946
Diluted		45,176		44,253		45,655		42,948

ULTRA CLEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands)

	July 1,		December 31,
	2022		2021
ASSETS
Current assets:
Cash and cash equivalents	$	421,364	$	466,455
Accounts receivable, net of allowance		243,815		250,147
Inventories		405,065		379,235
Prepaid expenses and other current assets		41,520		41,260
Total current assets		1,111,764		1,137,097

Property, plant and equipment, net		248,583		242,347
Goodwill		250,731		270,044
Intangible assets, net		207,390		245,696
Deferred tax assets, net		37,174		37,607
Operating lease right-of-use assets		79,191		83,357
Other non-current assets		10,533		9,242
Total assets	$	1,945,366	$	2,025,390

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings	$	22,334	$	22,071
Accounts payable		259,362		332,897
Accrued compensation and related benefits		51,412		46,790
Operating lease liabilities		15,437		17,299
Other current liabilities		47,592		50,060
Total current liabilities		396,137		469,117

Bank borrowings, net of current portion		524,030		529,919
Deferred tax liabilities		55,100		54,889
Operating lease liabilities		62,070		65,923
Other liabilities		13,315		12,894
Total liabilities		1,050,652		1,132,742

Equity:
UCT stockholders' equity:
Common stock		518,000		511,628
Retained earnings		340,252		337,417
Accumulated other comprehensive gain (loss)		(13,308)		(167)
Total UCT stockholders' equity		844,944		848,878
Non-controlling interest		49,770		43,770
Total equity		894,714		892,648
Total liabilities and stockholders' equity	$	1,945,366	$	2,025,390

ULTRA CLEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)

	Six Months Ended
	July 1,		June 25,
	2022		2021
Cash flows from operating activities:
Net income	$	9,088	$	43,640
Adjustments to reconcile net income to net cash provided by operating activities (excluding assets acquired and liabilities assumed):
Depreciation and amortization		37,671		30,906
Stock-based compensation		10,112		7,169
Deferred income taxes		1,130		877
Change in the fair value of financial instruments		(1,144)		12,987
Gain from insurance proceeds		—		(7,332)
Net loss on divestitures		56,642		—
Others		(142)		231
Changes in assets and liabilities, net of effects of acquisitions and divestitures:
Accounts receivable		609		(13,254)
Inventories		(43,170)		(41,271)
Prepaid expenses and other current assets		(2,520)		(328)
Other non-current assets		(1,767)		(713)
Accounts payable		(50,984)		80,768
Accrued compensation and related benefits		5,246		(1,084)
Operating lease assets and liabilities		(2,259)		(575)
Income taxes payable		(2,544)		948
Other liabilities		2,501		3,756
Net cash provided by operating activities		18,469		116,725
Cash flows from investing activities:
Purchases of property, plant and equipment		(46,524)		(22,702)
Proceeds from sale of property and equipment, including insurance proceeds		376		7,399
Divestiture of subsidiaries		(3,784)		—
Acquisition of business, net of cash acquired		—		(355,155)
Net cash used in investing activities		(49,932)		(370,458)
Cash flows from financing activities:
Proceeds from bank borrowings		4,655		371,486
Proceeds from issuance of common stock		—		193,138
Payments on bank borrowings and finance leases		(10,525)		(43,370)
Payments of debt issuance costs		—		(8,899)
Employees' taxes paid upon vesting of restricted stock units		(3,740)		(7,013)
Others		(253)		(128)
Net cash provided by (used in) financing activities		(9,863)		505,214
Effect of exchange rate changes on cash and cash equivalents		(3,765)		(354)
Net increase (decrease) in cash and cash equivalents		(45,091)		251,127
Cash and cash equivalents at beginning of period		466,455		200,274
Cash and cash equivalents at end of period	$	421,364	$	451,401

ULTRA CLEAN HOLDINGS, INC.
REPORTABLE SEGMENTS
GAAP TO NON-GAAP RECONCILIATION
(Unaudited; dollars in thousands)

		GAAP						Non-GAAP
		Three Months Ended						Three Months Ended
	July 1, 2022						July 1, 2022
	Products		Services		Consolidated		Products		Services		Consolidated
Revenues	$	532,016	$	76,681	$	608,697	$	532,016	$	76,681	$	608,697
Gross profit	$	90,897	$	27,470	$	118,367	$	94,819	$	28,492	$	123,311
Gross margin		17.1 %		35.8 %		19.4 %		17.8 %		37.2 %		20.3 %
Income from operations	$	(14,445)	$	8,934	$	(5,511)	$	54,429	$	12,961	$	67,390
Operating margin		-2.7 %		11.7 %		-0.9 %		10.2 %		16.9 %		11.1 %

							Three Months Ended
							July 1, 2022
							Products		Services		Consolidated
Reconciliation of GAAP Gross profit to Non-GAAP Gross profit (in thousands)
Reported gross profit on a GAAP basis							$	90,897	$	27,470	$	118,367
Amortization of intangible assets (1)								603		1,022		1,625
Stock-based compensation expense (3)								405		—		405
Covid-19 related costs (4)								2,914		—		2,914
Non-GAAP gross profit							$	94,819	$	28,492	$	123,311

Reconciliation of GAAP Gross margin to Non-GAAP Gross margin
Reported gross margin on a GAAP basis								17.1 %		35.8 %		19.4 %
Amortization of intangible assets (1)								0.1 %		1.4 %		0.3 %
Stock-based compensation expense (3)								0.1 %		—		0.1 %
Covid-19 related costs (4)								0.5 %		—		0.5 %
Non-GAAP gross margin								17.8 %		37.2 %		20.3 %

Reconciliation of GAAP Income (loss) from operations to Non-GAAP Income from operations (in thousands)
Reported income (loss) from operations on a GAAP basis							$	(14,445)	$	8,934	$	(5,511)
Amortization of intangible assets (1)								4,019		3,647		7,666
Restructuring charges (2)								1,134		—		1,134
Stock-based compensation expense (3)								4,005		380		4,385
Covid-19 related costs (4)								2,914		—		2,914
Acquisition related costs (5)								160		—		160
Net loss on divestitures (6)								56,642		—		56,642
Non-GAAP income from operations							$	54,429	$	12,961	$	67,390

Reconciliation of GAAP Operating margin to Non-GAAP Operating margin
Reported operating margin on a GAAP basis								-2.7 %		11.7 %		-0.9 %
Amortization of intangible assets (1)								0.8 %		4.8 %		1.3 %
Restructuring charges (2)								0.2 %		0.0 %		0.2 %
Stock-based compensation expense (3)								0.8 %		0.4 %		0.7 %
Covid-19 related costs (4)								0.5 %		0.0 %		0.5 %
Acquisition related costs (5)								0.0 %		0.0 %		0.0 %
Net loss on divestitures (6)								10.6 %		0.0 %		9.3 %
Non-GAAP operating margin								10.2 %		16.9 %		11.1 %

1 Amortization of intangible assets related to the Company's business acquisitions

2 Represents severance, retention and costs related to facility closures

3 Represents compensation expense for stock granted to employees and directors

4 Covid-19 related expenses incurred during the period

5 Represents costs related to the acquisition of Ham-Let

6 Represents the net loss on the divestiture of certain non-core subsidiary entities

ULTRA CLEAN HOLDINGS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

	Three Months Ended
	July 1,		June 25,		April 1,
	2022		2021		2022
Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income (in thousands)
Reported net income (loss) attributable to UCT on a GAAP basis	$	(25,093)	$	17,098	$	27,930
Amortization of intangible assets (1)		7,666		9,511		8,052
Restructuring charges (2)		1,134		(28)		49
Stock-based compensation expense (3)		4,385		3,724		5,449
Legal-related costs (4)		—		—		2,200
Acquisition related costs (5)		160		8,093		172
Fair value related adjustments (6)		—		8,583		—
Covid-19 related costs (7)		2,914		—		—
Net loss on divestitures (8)		56,642		—		—
Income tax effect of non-GAAP adjustments (9)		(11,081)		(5,259)		(2,611)
Income tax effect of valuation allowance (10)		10,688		1,956		2,084
Non-GAAP net income attributable to UCT	$	47,415	$	43,678	$	43,325

Reconciliation of GAAP Income (Loss) from operations to Non-GAAP Income from operations (in thousands)
Reported income (loss) from operations on a GAAP basis	$	(5,511)	$	31,947	$	45,711
Amortization of intangible assets (1)		7,666		9,511		8,052
Restructuring charges (2)		1,134		(28)		49
Stock-based compensation expense (3)		4,385		3,724		5,449
Legal-related costs (4)		—		—		2,200
Acquisition related costs (5)		160		8,093		172
Fair value related adjustments (6)		—		7,183		—
Covid-19 related costs (7)		2,914		—		—
Net loss on divestitures (8)		56,642		—		—
Non-GAAP income from operations	$	67,390	$	60,430	$	61,633

Reconciliation of GAAP Operating margin to Non-GAAP Operating margin
Reported operating margin on a GAAP basis		-0.9 %		6.2 %		8.1 %
Amortization of intangible assets (1)		1.3 %		1.8 %		1.4 %
Restructuring charges (2)		0.2 %		—		0.0 %
Stock-based compensation expense (3)		0.7 %		0.7 %		1.0 %
Legal-related costs (4)		—		—		0.4 %
Acquisition related costs (5)		0.0 %		1.6 %		—
Fair value related adjustments (6)		—		1.4 %		—
Covid-19 related costs (7)		0.5 %		—		—
Net loss on divestitures (8)		9.3 %		—		—
Non-GAAP operating margin		11.1 %		11.7 %		10.9 %

Reconciliation of GAAP Gross profit to Non-GAAP Gross profit (in thousands)
Reported gross profit on a GAAP basis	$	118,367	$	99,883	$	113,728
Amortization of intangible assets (1)		1,625		1,680		1,680
Restructuring charges (2)		—		201		—
Stock-based compensation expense (3)		405		414		477
Fair value related adjustments (6)		—		7,183		—
Covid-19 related costs (7)		2,914		—		—
Non-GAAP gross profit	$	123,311	$	109,361	$	115,885

Reconciliation of GAAP Gross margin to Non-GAAP Gross margin
Reported gross margin on a GAAP basis		19.4 %		19.4 %		20.2 %
Amortization of intangible assets (1)		0.3 %		0.3 %		0.2 %
Restructuring charges (2)		—		—		—
Stock-based compensation expense (3)		0.1 %		0.1 %		0.1 %
Fair value related adjustments (6)		—		1.4 %		—
Covid-19 related costs (7)		0.5 %		—		—
Non-GAAP gross margin		20.3 %		21.2 %		20.5 %

Reconciliation of GAAP Interest and other income (expense) to Non-GAAP Interest and other income (expense) (in thousands)

Reported interest and other income (expense) on a GAAP basis	$	(7,517)	$	(7,711)	$	(6,343)
Fair value related adjustments (6)		—		1,400		—
Non-GAAP interest and other income (expense)	$	(7,517)	$	(6,311)	$	(6,343)

Reconciliation of GAAP Earnings Per Diluted Share to Non-GAAP Earnings Per Diluted Share

Reported net income (loss) on a GAAP basis	$	(0.56)	$	0.39	$	0.61
Amortization of intangible assets (1)		0.17		0.22		0.18
Restructuring charges (2)		0.03		—		0.00
Stock-based compensation expense (3)		0.10		0.09		0.12
Legal-related costs (4)		—		—		0.05
Acquisition related costs (5)		0.01		0.18		—
Fair value related adjustments (6)		—		0.19		—
Covid-19 related costs (7)		0.06		—		—
Net loss on divestitures (8)		1.24		—		—
Income tax effect of non-GAAP adjustments (9)		(0.24)		(0.12)		(0.06)
Income tax effect of valuation allowance (10)		0.23		0.04		0.05
Non-GAAP net income	$	1.04	$	0.99	$	0.95
Weighted average number of diluted shares (thousands) on a non- GAAP basis		45,637		44,253		45,593


ULTRA CLEAN HOLDINGS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP EFFECTIVE INCOME TAX RATE

	Three Months Ended
	July 1,		June 25,		April 1,
	2022		2021		2022
(in thousands, except percentages)
Provision for income taxes on a GAAP basis	$	8,708	$	6,221	$	8,542
Income tax effect of non-GAAP adjustments (9)		11,081		5,259		2,611
Income tax effect of valuation allowance (10)		(10,688)		(1,956)		(2,084)
Non-GAAP provision for income taxes	$	9,101	$	9,524	$	9,069

Income (loss) before income taxes on a GAAP basis	$	(13,028)	$	24,236	$	39,368
Amortization of intangible assets (1)		7,666		9,511		8,052
Restructuring charges (2)		1,134		(28)		49
Stock-based compensation expense (3)		4,385		3,724		5,449
Legal-related costs (4)		—		—		2,200
Acquisition related costs (5)		160		8,093		172
Fair value related adjustments (6)		—		8,583		—
Covid-19 related costs (7)		2,914		—		—
Net loss on divestitures (8)		56,642		—		—
Non-GAAP income before income taxes	$	59,873	$	54,119	$	55,290
Effective income tax rate on a GAAP basis		-66.8 %		25.7 %		21.7 %
Non-GAAP effective income tax rate		15.2 %		17.6 %		16.4 %


1 Amortization of intangible assets related to the Company's business acquisitions
2 Represents severance, retention and costs related to facility closures
3 Represents compensation expense for stock granted to employees and directors
4 Represents estimated costs related to legal proceedings
5 Represents costs related to the acquisition of Ham-Let
6 Adjustments related to the fair values of inventories related to Ham-let and purchase obligation related to QGT
7 Covid-19 related costs incurred during the period
8 Represents the net loss on the divestiture of certain non-core subsidiary entities
9 Tax effect of items (1) through (8) above based on the non-GAAP tax rate

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