Q1 2021 Ultra Clean Holdings Inc Earnings Call
Good day and welcome to the ultra clean first quarter 2021 conference call all participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be and opportunity to ask questions to ask the question. You May Press Star then one on your Touchtone phone.
To withdraw your question Press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Rhonda Banesto Investor Relations. Please go ahead.
Thank you operator, good afternoon, everyone and thank you for joining US with me today are Jim Shellhammer, Chief Executive Officer, and Sheri Savage Chief Financial Officer, Jim will begin with some prepared remarks about the business and Sheri will follow with the financial review and well open up the call for questions.
Today's call contains forward looking statements that are subject to risks and uncertainties for more information. Please refer to the risk factors section and our SEC filings. All forward looking statements are based on estimates projections and assumptions as of today and we assume no obligation to update them. After this call.
And of our financial results will be presented on a non-GAAP basic and a reconciliation of GAAP to non-GAAP can be found in today's press release posted on our website and with that I'd like to turn the call over to Jim Jim.
Thank you Rhonda and good afternoon, everyone. We appreciate your time today.
I'm going to start with a brief review of our fourth quarter performance, while sharing my thoughts on the industry and how accelerated technology advancements are benefiting UCT.
After that I'll turn the call over to Sherry for a review of our financial results and activities and we will.
I'll open up the call for questions.
UCT again delivered record revenue growth of above expectations for the first quarter driven by solid execution of our higher than expected demand across both of our products and services markets.
I sincerely thank the thousands of employees around the world, who collectively pull together to anticipate commit and deliver the best possible results for our customers our company and our shareholders.
Well, I'm, making a part and continuous investments and our people our facilities our products and our services, we have grown our revenue by 30% and our earnings by 70% year over year.
Because of our strategic investments and our businesses are closely aligned with the needs of our customers I am more confident than ever that we are well positioned to capitalize on the long term increase and the industry demand.
E C. T remains solidly on track to outpace the accelerated growth of our served markets again this year.
The buildup of digital infrastructure that accelerated last year because of the pandemic, along with an expedited recovery and the need for semiconductors and fueling overall growth.
This has resulted in a considerable increase in productivity for our customers across all market segments compared to just three months ago.
Our customers and their customers are making significant investments and response to projected strong multiyear growth due to secular trends such as five G cloud computing and artificial intelligence.
These investments have effectively reset equipment spending expectations to a much higher level for the foreseeable future.
Our product business and strategically positioned to benefit from this increase due to a very broad exposure across all device types.
And our services business will profit from the increase and fab utilization rate.
One of our most important accomplishments this past quarter was the closing of the Hamlin acquisition.
The addition of hamlet high purity of flow control system means we can now offer our customers the more diversified set of product offerings.
This enables us to play an increasingly important and pivotal role in meeting our customers' needs from the design processes, all the way to the support and service and maintenance requirements found and any high volume manufacturing fab.
And the timing of this acquisition couldn't have been better how.
How much gas delivery capabilities, not only play an important role within the equipment space, but also within the top of fab infrastructure buildup phase.
And Capex for these projects is on the right.
With Intel recently announcing the spend an additional 20 billion TSMC and the SK Hynix dating day, we spend 100 billion and.
Samsung reaffirming your 100 billion dollar of investment over the coming years, we plan to leverage existing relationships with our customers and see a clear opportunity to participate and the multiyear build out of these foundry and logic and memory Fabs.
Yeah.
You say Gees, new facility and Malaysia remains on track to begin production and the third quarter.
And this state of the art facility is being built to support revenue run rates of 600 to 800 million annually, when fully ramped and enabling us to better serve and bring value to our local and global customer base.
Hiring began earlier this year and many employees are already being trained.
We are uniquely positioned to support our customers and grow our share and outsourcing opportunities and gain momentum.
Another major achievement. This quarter was the U T. T was awarded until 2020 supplier Achievement Award for COVID-19 response.
We were one of only 38 suppliers and the Intel supply chain to receive such and award and I would like do you think of Intel for the prestigious recognition and all of our employees for their hard work.
This award is a testament to our dedication and deep commitment to our customers and underscores why and UCT as a partner of choice.
Yeah.
I mentioned this last quarter and it's even more meaningful today theres never been a better more opportune time to be D manufacturing leader and the semiconductor industry.
Our growing portfolio of product and service offerings together with our strong operational performance and resilient business model will drive continuous long term growth and profitability with the goal of returning even more value to our shareholders.
The addition of hamlet share gains and unprecedented levels of demand all contributed to a substantial increase in revenue guidance for the second quarter.
Industry sentiment backed by our internal market analysis, and predict strong sustainable momentum and UCT is poised to continue to outperform through 2020, one and beyond.
Before handing the call over to Sherry I want to again, thank our employees and our suppliers and partners, where they're incredibly hard work and we look forward to speaking with you again in the new Bob and.
And with that I'll turn the call over to share it to review our financial activities and performance share.
Thanks, Jim and good afternoon, everyone. Thanks for joining us and todays discussion I will be referring to non-GAAP numbers all of them.
Total revenue for the quarter was $417 $6 million up 13% from the prior quarter.
Our products Division was up $15 four per cent two of $345 6 million and our services business grew two 7% to $72 million both on increased demand across the board.
Total gross margin for the first quarter remains at the high end of our model and 21 three per cent compared to 21.5 per cent last quarter.
Product gross margin was 18.2 per cent compared to $17 eight per cent and services was 36 per cent compared to 37 five per cent last quarter.
Margins can be influenced by customer concentration geography product mix and volume. So you can expect to see variances and coordinate the quarter.
Operating expenses for the quarter was $38 $1 million compared to $35 7 million and Q4.
Due to typical costs related to year end and increased head count and support of the ramp.
As a percentage of revenue operating expenses decreased to 9.1 per cent compared to nine seven per cent and the prior quarter.
Total operating margin for the quarter increased to $12 two per cent compared to $11 nine and the fourth quarter.
Margin from our products Division grew to 11 point and 10% from 10, 8% and the prior quarter and margin from our services Division was $14 three per cent compared to 16.3 and the prior quarter.
Based on 41 6 million shares outstanding earnings per share for the quarter or 92 cents on net income of $38 2 million compared to 81 cents on net income of 33 5 million and the prior quarter.
Our tax rate for the quarter remained unchanged from last quarter at 18%.
And we expect our tax rate for 2021 to stay and the high teens.
Turning to the balance sheet, our cash and cash equivalents were $264 3 million at the end of the first quarter compared to 200 point of 3 million last quarter.
Cash from operations was very strong at $55 6 million and an increase of $21 2 million from the prior quarter.
Okay.
And the first quarter, we refinanced our term loan kept some of the online acquisition.
The offering was comprised of $355 million incremental debt and included the repricing of our existing $273 million zone.
The offering was approximately four times oversubscribed and resulted in a new term b loan totaling $628 million and an interest rate of 375, plus LIBOR compared to $4 50, plus LIBOR for the original alone. We are very pleased with the strong investor interest and resulting term of the new loan.
In addition on April eight we completed a public offering of three 2 million shares at $55 per share, resulting in gross proceeds of approximately $775 million.
Use of the proceeds will be used to fund our growth strategy, which may include capital expenditures and future M&A.
These financing activities will be reflected in our Q2 financials.
With the completion of our refinancing and our equity offering and we are well positioned to capitalize on expansion opportunities, while maintaining the ideal level of operating leverage.
To continue to meet accelerated demand and including a full quarter of revenue from Homelink.
We anticipate revenue for the second quarter to be between $490 million and $520 million and increase of 21% using the midpoint.
Excluding the hotline Uct's core business would have been guided up approximately 8%.
We expect EPS and the range of 90 cents to a dollar tree.
And with that I'd like to turn the call over to the operator for questions.
Okay.
We will now begin the question and answer session to ask a question Press Star then one on a touchtone phone. If you are using a speaker phone. Please pick up your handset before pressing the keys.
The fact anytime of your question has been addressed and you would like to withdraw your question Press Star then two.
At this time, we will pause momentarily to assemble our roster.
And the first question comes from Quinn Bolton with Needham and company. Please go ahead.
Pardon me quite if you're talking we cannot hear you your line might be muted.
Sorry, Yes, I was muted and apologies congratulations guys on the on the nice results and guidance.
Sure I wanted to start with with the financial guidance for the June quarter, If I've got my numbers right.
Is the core UCT business up 8% would be guided to roughly 450 million and then net.
The difference would be that the hamlet contribution.
Yes, that's correct.
Great.
The second question, perhaps for Jim just as you look at your how the company's positioned in 2020, one you talked about being able to grow faster than the and WMC and the industry and I guess I'm wondering.
Do you think the core.
SSP and and Sps businesses or are growing in line faster than W. If the if you were to exclude that the Hollywood acquisition.
Yeah, Hi, Quinn definitely on the F. B outside obviously, we're seeing very strong growth quarter on quarter and I think we expect to see that and we're really.
Looking forward to our increased capacity coming out of Malaysia, and the last half of the year and it really helped with that.
As you know on the services side of the cleaning side that growth more along with wafer starts. So we expect to see that grow more.
More in line with the wafer start growth or hopefully slightly above that as we as we works of our programs.
Okay, Great and then just the I guess the last one for me yeah. The the strength of results are just just from the broader semi cap companies that have reported to date seem to be you know raising fears again about a near term peak can you make any comments about how you see the second half.
Of of the year do you think it sort of flat with with the the higher first half do you think the business can continue to grow half over half and and the second half.
And I'd say, it's safe to say, we see no reason why.
It couldn't continue to grow throughout the year.
Great I'll get back in the queue.
Yeah.
Thanks Quinn.
The next question comes from Patrick Ho with Stifel. Please go ahead.
Thank you very much and also congrats on the really nice quarter and outlook did and maybe first off you guys did a great job last year in terms of procuring the supplies and meeting customer demand.
And a very challenging period with the pandemic.
This year, we're starting off where demand is obviously.
Seating everyone's expectations.
And what lessons you learned from last year that you're applying this year and and how are you keeping pace with a lot of your customers demand needs because of again.
And again, the demand expectations and have significantly risen and the short term and the results, obviously and that you're keeping pace with what your customers you need.
Things that you've learned from last year that you're applying this year or are you. Just are you just able to meet a lot of that.
I guess excess demand.
Yeah, Hi, Patrick Yeah, that's definitely.
You're absolutely right, it's it's very constrained.
Environment right now I think one of the big things and I think our customers also learned that it's really to take.
The projections and the commitment back as far as you can through the supply chain or your suppliers and through your supplier of suppliers.
And and really operate beyond you know of P. O. The P O kind of basis and work more on and our forecast and our and our.
The partnership kind of basis with the suppliers. So I think we've done a good job with that and there's always there's always more to do but I think.
You know I think the industry has moved away from being transactional to being more of a partnership all the way back through the supply chain.
Great that's helpful and maybe as my follow up question in terms of.
The the new facility in Malaysia.
And traditionally you know of new facilities tend to weigh a little bit of all costs are and you're working through some duplicate costs and things of that nature with the new facility with the given the current environment and the expectations as we go into the second half of the year.
And then Sherry, maybe you can give a little color on.
The potential impacts to gross margin or if there are any given that the demand for biomarin could absorb a lot of it and in a <unk>.
[noise] quicker fashion.
Yeah, Patrick you're right with the volumes that we're seeing and we're not we're not seen as much impact on the margins as we move through the year. So we're seeing obviously the volumes be very very high and other other locations, which offsets the additional cost coming in and we are utilizing that labor for within the Asia to help us with.
With that output within those other facilities. So I would kind of think about Malaysia, and Singapore, almost being the combined entity and when we look at those costs and and those are actually assisting us with the meeting the demand that we need so it's.
It's a it's not putting as much pressure on and had we not been in the situation from a volume perspective.
Great. Thank you again and keep up the good work.
Thank you Patrick.
Yeah.
The next question comes from Tom Diffley with D. A Davidson. Please go ahead.
Yes, good afternoon, and thank you for the question.
First of couple of housekeeping for Sherry what is the the new share count them and what are you projecting the interest expense to be going forward.
Yeah, we expect the interest expense to be closer to $5 million.
The new share count adds 3.2 million shares to our current count so closer to $45 million from the share count perspective.
I can give you the exact numbers a little bit later, but that's the that's the are the where we anticipate being.
Okay, Great and just wanted to make sure and and Jim When you look at the hamlet business does that do those products grow with W. P. M. And then I guess you know what it's been the customer response, so far view controlling it and what is the timing for getting more of their products into your gas pedals.
Yeah, So Tom and thanks.
Yeah, as you and I think we the.
The elaborated earlier about 60% of the revenue is semiconductor related and yeah, we would expect to growth.
And with U S D and the short term and and actually as we're seeing actually of the short medium term potentially outgrowing that as well and the long term I think we see.
Like the two to three year period, we see a lot of opportunity to make huge gains and and the market share of our bahama components in the space and so you know that that's the that's a percentage of it's actually relatively high but I think I think of it and the next year, we expect karma as an entity to at least grow.
Along with the have you at the and all of our game is our goal is the continued to make that outgrow wf for you just like we do winner and our net.
Business.
Okay, Great and then what are your assumptions for the non semi part of that business is it sort of fairly flat.
Yeah, and we're seeing the semi part so strong that I would actually say the whole company is drawing along with all of your V or maybe ahead of that the.
But the non semi part.
It's kind of the the case of like the hits and hits and and.
And the other you know Mrs and I think the liquid the true.
Nitrogen gas are starting to show some signs of the wipers, starting to see some activity there were really starting to disappear and learn about those other parts and and try to get a feel for how those industries might grow or change over you know over the course of time.
But I think the simple way to think about it and you know we expect you know how and what is a hold of at least grow along with W. At the.
The combination of the two sides of the business and and hopefully beat that by the normal 10 points and we do.
Okay, Great and then finally, congratulations on the Intel supplier award was that for the clean business.
Yes, yes, it was and that was for our response to COVID-19, which actually both sides of our business day. The did a great job, but yeah that was and particular to our ability to really use our global footprint to to really keep the Intel fabs moving and flowing when one factory would be hit by COVID-19.
We were able to use our footprint of really.
The move things around and be adaptive and flexible and and we were really very delighted to be recognized by you and tell for that.
Okay, great. Thank you for your time.
Thank you Tom.
Thank you.
The next question comes from Christian Schwab with Craig Hallum Capital Group. Please go ahead.
And congratulations guys on the great quarter and solid outlook.
And going back to Malaysia.
And if you if we kind of look at the Singapore and Malaysia as a as a combined basis is there any way when the.
The when the capacity is fully online and Asia, Malaysia excuse me.
And the incremental revenue opportunity of the company and other words.
Today, we have X amount of opportunity of year, a quarter and then after Malaysia is fully ramped at this much bigger.
Yeah, So Christy and yeah I think.
And we're looking and Malaysia, adding 600, the 800 million annually of more capacity.
And right now it is the very symbiotic nature with Singapore is as we move things back and forth as we're still finishing off the building right now, but yeah, I think and at the end of the day, Malaysia I should.
All in had 600 to 800 million and additional revenue and all of it to us.
And the Woodford.
It's not finished being built yet so where it goes we're ramping up and the.
The third quarter.
So you know we're utilizing some of the employees that we've hired for it you know with the Singapore operations to help deal with the with the the high demand out there, but at the store at this point, we're still of just starting up and finishing off the building.
And that's what I thought so.
We look to the huge or strong or meaningful of whatever adjective you want to use multi year capex spending environment by the world's largest vendors and your largest customers.
And as that kicks in and Q3 and you should be very well positioned.
For that strength and potential market share gains is that fair.
Absolutely and and actually we're seeing.
Different projects that we're winning are actually going straight into Malaysia production as the initial production site, which is which is highly unusual with the new production site. So I think.
The environment and so that new capacity coming on board right. Now is the very valuable commodity. So we're seeing a great reception from our customers due to move product.
Either from their own factories or or for them from other sources to our new Malaysia site. So we are we have pretty high expectations of our ability to use that and that new capacity coming online you know right and I would say right and the near term.
Yes.
Looking at the Malaysia coming online and then you look and you know all of the new fab build and and.
And your opportunity with hamlet there.
And as well as.
You know more equipment for quantum to clean.
It seems to me.
And your mouth, but it seems to me that your ability to outgrow the market of over the next two to three years.
Could even be more meaningful than it has been and the last few years.
Yeah, I think that's a fair statement, yeah, 10 percentage than our average outgrowth of the market, but we certainly strive to do much more and that especially with the acquisition. So we.
Definitely looking at and outpacing the market.
By at least 10% and and obviously more if we can and and the addition of Malaysia sets us up really nicely for that.
Great I don't know of any other questions great. Congrats again.
Thank you Christian.
The next question comes again from Quinn Bolton with Needham and company. Please go ahead.
Just two follow ups the.
The the first sort of a fault the to Christian's question did and as you look at your share gains.
Yeah.
How much is that being driven by the COVID-19, you know supply chain tightness and the Oems being willing to sort of open up new second sources or additional sources of supply whether that's in your core business or opportunities for hamlet.
Yeah, Colin and I think of the COVID-19 impact I think we've seen a lot of that already flow through I think the the majority of what we're seeing is just simply and overall need for capacity and the and the overall ability to to build the build the equipment.
I think we've all seen this before obviously the.
The capacity coming online right now certainly.
And certainly an opportune time for us and I think the majority of the of the of the impact is simply.
And the demand is very strong for equipment and the ability for whoever can deliver right now and you're right I mean, there's it there's the level of COVID-19, but theres also an openness to two opening up avenues to.
Reached the deliberate reached the delivery needs of the of the young customers. So I think I think at the end of the day. The the biggest stress is simply the overall need for capacity and the industry.
Okay, Great and the second question was the follow up on the hamlet and and the in sourcing opportunity to extent you qualify and handle it components in your gas panels, I guess that that doesn't show up as revenue since it's it's included in your gas panel, but it shows up as margin enhancement. So I guess two.
Two questions one when he talked about him like growing in line for faster than wf the.
And I assume that that excludes the.
And opportunity to in source components to T. She used to T gas panels, but I just wanted to confirm that and then the second question is can you kind of walk us through the math, but what's the opportunity as you in sources all the components and your gas panels, how much of a margin boost do you think you could see.
And so the first question, yes. It does it it does exclude insourcing or internal transactions as far as the the growth of that.
We're seeing on the AMR side.
On the on the <unk>.
The overall potential to grow I think the several areas that are driving that certainly the Oems and their requirements as well as some.
Some of the chip makers and the al and Theres, a lot of new fab announcements as well as I think you've all seen and those fabs.
Demand a lot of the same type of components that are used on the OEM equipment. So I think we're seeing pretty strong demand over the next several years across the board.
Yeah.
Thank you chip.
Thank you Glenn.
The next question comes from <expletive> Ryan with Colliers. Please go ahead.
Thank you a couple of for Sherri.
And do you have any debt Paydown goes for what you might be looking at for this year.
Yes, absolutely take them you know we plan to substantially pay it off pay off some of the debt this year with our our cash flow that we've we've generated so I would say our our goal is around $50 million for the year.
Okay.
And and you know obviously with the addition of hamlet and the.
Trends underlying the market can we expect any kind of operating model updates for from you guys and the.
The next coming quarters.
Yeah. So I you know obviously, we just closed the acquisition and so where we have identified synergies and we do see that we will be updating and we will need to update our model and as we move.
Move to the next quarter or two we see in the overall update potentially true gross margin and then ultimately they they will.
Assist us with updating our operating margin as we go into next year, but we will make an update and the next quarter or two as we see how they perform and how the synergies flow through that we anticipate happening short term.
Okay, good and and Jim what what kind of base or the operating assumptions are you using for WMC and wafer starts.
I think that'd be a D. We're looking at the same assumptions that.
You know the overall market is looking at 'twenty, the 22% increase and Wi Fi and.
Yeah. The wafer starts wafer starts are I think the the latest numbers, there and they're coming out pretty quickly.
And often I think they are and the high single digits, maybe the low double digits and.
And you could look that up for you what are the latest market forecast for that and there's no. That's that's just a range and that's good I appreciate it thank you and and congratulations as well.
Thank you <expletive>.
Thank you.
Again, if you have a question press Star then one to be joined into the queue.
The next question comes again from Patrick Ho with Stifel. Please go ahead.
Alright. Thank you for taking my follow up question, Jim and maybe a bigger picture question on the services side and and the parts cleaning obviously fab utilization is the biggest driver for demand and that business, but with some of your major customers at the most leading edge of both the the foundry logic as well as.
And the memory side of things are the complexities of manufacturing. These next generation devices cool enhancing the need for parts cleaning and one of them getting by that is again utilization is probably the biggest driver, but because the yield is becoming so much more and more important at the most advanced nodes that's dry.
IV I guess.
Incremental needs for them for parts cleaning to ensure that our you know the the.
The the tools keep running at the highest the puts and yields.
Yeah, that's the that's a good point Patrick.
And I think what we're also seeing youre right at the advanced nodes the parts cleaning the cycle.
It seems to be.
It seems to be good.
And more vigorous and order to keep the yields up of where we're also starting to see is advanced coatings are becoming a really important factor. So it used to be you clean the part and you return it now and.
And there's always been certain coatings.
You know that are applied to the parts for for certain reasons.
And as we move down to seven and to five and the three nanometer, we're starting to see specialty coatings and and surface texture and becoming a more important player. So not just not just cleaning the PARP and also applying the special coatings and texturing and so it is growing I mean, obviously the very small revenue.
Overall compared to overall cleaning at this point, but we're seeing the growth in that space is really kind of off the charts and and we think that's an area that's really going to take off for the next few years, which is which is really a lot more around cleaning plus and and that's where we have a great position and we're doing a lot of all of.
A lot of work with the leading idms and that space.
Yeah.
Great. Thank you very much.
Yeah.
There are no further questions. So I would like to turn the call back over to Mr. Shellhammer for any closing remarks.
Yeah. Thank you everyone for joining us today, and we look forward to speaking to you next quarter. Thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
[music].
Yeah.
Yes.
[music].