Q4 2019 Earnings Call
In the short-term. We are energized by the opportunities. We see this year the semi industry continues to gain momentum and all indications Point towards a healthy year for the industry our customers off and UDP.
Increase compex setting is supporting strong demand for industry-leading 7 and 5 9 Technologies across multiple platforms relating to 5G rollout and artificial intelligence off the memory Market. We are seeing a step up in memory Investments and improvements in memory chip pricing.
by close to
Partnering with our customers. We are completely aligned to benefit from the advancement of their roadmap.
Over the long term we expect the explosion of data generation and new approaches to Computing will sustainably create value as the electronics Industry raises to provide leading-edge capability walk across a broad range of semiconductor application.
Working in close partnership with our customers to accelerate the time to Market further advancing Technologies. UCC is delivering on admission strategy and objectives with that. I'd like to talk to call over to Sherry for a financial review an outlet Sherry. Thanks, Jim and good afternoon everyone. Thanks for joining us in today's discussion. I will be referring to non-gaap numbers only month UCT demonstrated strong financial performance through the most recent industry cycle total revenue for the year with 1.07 billion dollars flat was 2018 this compares to decline in the mid-teens and wfp spent in our primary segment statement.
accelerate demands
Throughout 2019 together with our cost-reduction initiatives resulted in a 140 basis point Improvement in gross margin and a 160 basis point Improvement in operation since the beginning of the year. We generated a record $121 in cash from operations and reduced our long-term debt by $50 significantly improved our Leverage.
A number of measures. The fourth quarter was especially noteworthy for u t t as demand continued to accelerate on improving market conditions. We exceeded our expectations and revenue and EPS foam improve gross margin and operating margins and generated significant cash from operations.
A pickup and Equipment demands our products division grow Revenue by 15.1% coming in at two hundred thirty point two million dollars and our services division contributed fifty six million dollars up 3.5% over the prior quarter as wafer Fab utilization began to return to normalize run rates.
Volume together with the realization of our cost structure improvements brought total gross margin to 20.1% up from 19.2% in the previous quarter our services Graham Martin was 36.5% and products was 16% as we've shared before margins can be influenced by customer concentration geography product name and volume and the timing of our restructuring initiative. So you should you should expect to see variances quarter-to-quarter.
Operating expenses of 34.2 million dollars were flat compared to the prior quarter despite the increase in Revenue as a percentage of Revenue effects decrease to 12% from 33.4% last quarter.
Total operating margin for the fourth quarter was 8.1% compared to 5.8% in the previous quarter.
Marjan contributed from the services was 14.3% compared to 9.8% last quarter and products contributed 6.6% versus 4.6% in the prior quarter.
based on
40.5 million shares outstanding earnings per share for the quarter improved from Twenty One cents per share in Q3 to 33 cents per share derived from net income of 13.2 million dollars, excluding stock-based compensation. EPS was $0.40 for the quarter compared to $0.28 last quarter beginning with the Q 101. We will be recording non-gaap EPS excluding stock-based compensation. Our tax rate for the quarter was 20.8% compared to 23% last quarter wage primarily due to favorable exchange rate movements.
Turning to the balance sheet cash from operations was 31.9 million dollars and we ended the quarter with 162 point five million dollars in cash and cash equivalent of the quarter. We made additional voluntary loan payments of 19.1 million dollars this brings our current net leverage down to a favorable 1.36 are strong balance sheet gives us confidence that we can meet customer demand as the market continues its upward trajectory.
against
Proving backdrop of increased demand and risk-adjusted for the current China situation. We are projecting total revenue for the first quarter between $290 and $320 a month ETS in a range of $0.40 to $0.52 excluding stock-based compensation, and with that. I'd like to turn the call over to the operator for questions. We will now begin the question-and-answer session to ask a question. You may press * then one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. If at anytime your question has been addressed and you would like to withdraw your question, please press * then two at this time. We will pause momentarily to assist our roster.
The first question comes from Quinn Walton of Needham & Company, please go ahead. Hey Jim Shorkey in Rhonda. Congratulations on the record gross margins and strong cash flow in the quarter back. I guess starting off with with obviously the short-term impact for the coronavirus. Wondering if if you guys could say how much off the March quarter guidance you may have taken into account the coronavirus risk, and, you know, the possibility that some shipment slipped from you wanting to cute too and then I've got a couple of follow-ups. Thanks.
Yeah, hi Quinn.
Um, if we have approximately we we are estimating about 5 to 10% of Revenue shifting into Q2 at this point. We don't see any orders disappearing age. They're they're all just most likely shifting into the quarter the second quarter due to due to constraints in the supply chain.
Got it. Thank you. And then you're just kind of a sort of a longer-term picture or maybe just just just you know, you think about the year twenty-twenty, you know sort of a lot of moving Parts. We've got I think Foundry logic appears to be front half loaded you talked about memory picking up it felt like that might be more back half loaded and then obviously the short-term effect from coronavirus. How would you encourage us to think about the linearity or the sort of the trajectory of Revenue over the course of the year? Can you grow sequentially is a front half loaded back app loaded. How do you think we should be thinking about the the wrong pattern is cheap you see it today.
Yeah, as you stated a lot of moving parts and you know in the recent.
A few more moving Parts showed up. I I think you know in short, you know, I think we saw we've we had experienced what our customers had called the steepest ramp in in whatever scene not the highest ranked the highest level by the end of last year. It was the steepest ramp. And so we we were kind of expecting that there was a good possibility for you know memory to start kicking in in the second half as we saw the fundamentals improve and and another kind of step up there. I think at this point, it's really hard to it's it's even more difficult to tell what's going to happen there in the in the short-term, you know, there's the impact all the way down the line from coronavirus, you know, there's China demand obviously is going to be impacted for in devices as well. As you know, a lot of the supply for electronics are made in China, so it could be a a supply issue end the demand issue on the way Downstream.
Please leave some fabulous are going to drop in China the short-term.
Who knows how short or how long but it's making ymtc or two customers that have been taking equipment and ramping that are you're going to be affected in the short term, you know, and then obviously off, you know, there's there's delays and possibly some hesitation that will happen by the larger players like tsmc and Samsung on exactly the timing of when they would have made the memory investment. So there might you know, that could potentially be some more wait and see so we're we're anticipating a good possibility for a memory to to to really kick in in the in the second half of the year. It could end up being more of a wait-and-see as they as they see how these things Rebel through or it could it could continue to happen according to our expectations. It's really difficult to tell but I think if you think of the shape of I think we're expecting, you know, too sharp step up and then obviously usually there's an over there's a correction, you know a year down the road so it might possibly look something like a month.
Remove the ramp up with less of a correction in in the in.
The outer, you know a year and half two years from now, so it might be I guess I would think the shape kind of flattened out a little bit more but maybe you know more of a smoother ride through this ramp rather than the the the up and down great. Thanks. Thanks for like color and then just just lastly you mentioned in the quantum business some of the Fab utilization rates getting back to more normal level wage. You talked about some of the near-term impact you'll likely to see in some of the China Fab utilization rates, but wondering if you could look across your other logic and memory customers or you said, you know still increasing utilization rates. How do you how do you see utilization kind of trending, you know into kind of q1 Q2? Yeah dead is continues to be strong and and pretty much unaffected by by the coronavirus memory is in Korea has been ramping up. It didn't come up all the way by the birth.
of the quarter
Thank you for that. We anticipated but it it's definitely been increasing in a good trajectory up and and we expected that too now to continue back to we expected full utilization by the end of the quarter. It looks like that might be a month or two behind and the utilization is in China are obviously going to be impacted by our footprint for that business in China's is relatively small so you won't see much of an impact for you back on that front.
Great. Thank you.
The next question comes from Patrick of stifel, please. Go ahead.
Hi, good afternoon. This is Brian calling in for Patrick. Congratulations on the execution in the quarter a couple of questions here. I guess just to sort of pin down a first Jim took you out look am I right and sort of extrapolating that you know, relative to the constraints you're sitting in the quarter the SPs business maybe up to sort of high single-digit sequential and then maybe the SSD sort of up low-single digits sequentially.
Yeah, that sounds about right.
I think obviously it would have been SPS would have been higher without some of the supply chain pushes into into the second quarter, but that that sounds about right.
Got it with like the native demand sounds like sort of maybe up mid-teens Dish sequential would have been the native demand. Yeah. Yeah, that sounds right. Okay, great. And in terms of months, maybe pulling Sherry and in terms of the influences on gross margin, do you expect some, you know downward influences potentially as you know, you look to maybe expedite late in the month order and you know, the other sorts of complexities that are involved here in terms of just the challenges that you're facing in this current quarter that's always kind of part of our business in general. We you know, we have a lot of drop in orders that happen often and we we have a lot of expedite Expediting that occurs so that we can meet customer demand. So it's kind of similar to what we normally have happen. So I I don't like being extraordinary at this point forty-one in order for us to meet the demand necessary for our customers. So it's it's kind of a standard practice for us to have to expedite and make sure that we dead.
We get our material in on time.
Of the Chris Martin scored according. Okay right now, yes.
Got it. Got it and maybe turning back to SSB. Another question there. You're in a sequential growth kind of trajectory at the moment here. Last couple of quarters still down a little bit year-on-year and Jimmy reference how you see memory utilization some key parts of the globe starting to come back home to get back to more fully loading as we kind of cross back over to positive growth and maybe you expect that to happen first half of this year. What kind of growth do you think we could return to this year and wage of hard but that tends to be a sturdy business. It doesn't usually contract you often. So just kind of curious what your what your perspective on that is.
Yeah, typically without acquisition that business should grow in the in the mid-to-high single-digit percentages. 2019 was a a strange year with be fabulous Asians in memory having a hole in the middle of the year, but all all other things being considered assuming, you know, no long-term impact from what's happening with the in China with the with the coronavirus, you know, typically that business should grow 5 to 10% a year.
So kind of a a neutral impact in terms.
That's helpful. Thank you.
The next question comes from Carl Ackerman of Colin and Company, please go ahead.
Hey, good afternoon, Jim and Sherry you are larger customers have already given much qualitative guidance on semi cap spending for this year of being up, you know ten to fifteen percent in each of your top two customers expect to outgrow the market. I know you don't really got for the full year. But how important is your customer diversification and new program winsberg to achieve that low double-digit growth versus elevated industry spending.
Yeah, I think we are still strongly correlate with that large, you know the our major to customers I think you know together they're still about half of our of our revenues. So there's a there's a very strong correlation there. We have some some pretty nice success on projects wins in some of the new accounts and and that we stated on the last call. We are our our goal over the next month to add one to two more reportable customers that are 10% or higher. So those are those are doing pretty well, but obviously higher growth but on a smaller number, I believe it. I believe we could you know, many of those estimates you talked about, you know came out before the full, you know, understanding or impact of of the coronavirus as of right now and so I think some of those you know, those estimates are going to obviously have to be continued to be looked at but I would still expect that we could grow roughly along the same lines as our two major customers dead.
Appreciate that Jim may be shifting gears to to profitability. I was hoping you could discuss your gross margin leverage from here particularly what looks to be an accelerating a business, you know some of your fixed and variable costs actions to date as soon as we've taken effect, you know, and then whether or not a memory recovery would have any mixed benefits for you if that would occur later on this year.
Maybe I'll start let Sherry add some color. Yeah, I think of how we've kind of bucket it our performance in different Revenue ranges, where where we're at the higher end of of our expectation of of margins of where our model is and you know, obviously varies from quarter-to-quarter. I think a lot of the leverage has has been laid out and and I think at this point, you know, I wouldn't expect I expect we saw a lot of the fall through kind of happened as we went from home, you know up double-digit growth. And so I think they'll still be some continued continued Improvement there, hopefully, but we're already kind of operating at the high end and so obviously there's a lot of fruit is a little bit higher up on the tree.
yeah, so Carl from a from a
This margin perspective. I mean obviously volume is going to be the the key factor for 2020 especially, you know being at 20% gross margin is a a higher end of our range with our new model that we took it out in our corporate presentation on the website today. So, you know, I think the key thing there is really the volume play coming in and obviously making sure that our cost structure needs an alignment with our with the revenue growth that we potentially see so it's just a matter of watching that closely and hopefully having the similar fall through that we've seen in the past as we've gone up in a cycle.
Great appreciate that. Thank you.
The next question comes from Tyler Burmeister of craig-hallum, please go ahead. Hey guys. Thanks. So let me ask a question. We have a Christian. So most of my questions and answer them on the circle back to memory. It sounds like memory you would agree is kind of more of a second half way of thing and and possibly more even at a 2021 event. I'm just wondering if if those increases off memory spending are still mostly technology transition driven or if we're going to start seeing some capacity additions as well there.
Yeah, well, I have to see the combination of the two but it's definitely a technology note for them moving down. I think the the you know, the the Samsung investment off, you know in the Fab is a big one and that's really going to move the needle when when that Fab which where the shelves already built out where that investment will happen. And I think that that's obviously a both that's a capacity plate and the next you know, next Generation deram device. So as the price isn't dear am have been improving and off and capacity capacity ads have been very disciplined and demand has continued to increase. I think it's it's going to play a dual role of bringing the spring to the next note as well as long there's going to be capacity of memory that's going to be required as soon and it just may move one way or another depending on some of these short-term impacts that we're seeing.
All right. That's great.
Thanks. Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.
Thank you. I appreciate you joining our call. We look forward to talking to you. Next quarter. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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