Q2 2025 Ultra Clean Holdings Inc Earnings Call
Operator: At this time, all lines are in listen-only mode.
Operator: Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator.
Operator: This call is being recorded on Monday, July 28, 2025.
Rhonda Bennetto: I would now like to turn the conference over to Ms. Rhonda Bennetto, Investor Relations. Thank you. Please go ahead.
Good afternoon, ladies and gentlemen, and welcome to the Ultra Clean Technology Reports Q2 2025 financial results conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Monday, July 28, 2025. I would like to turn the conference over to Ms. Rhonda Bennetto, Investor Relations. Thank you, please go ahead.
Clarence Granger: Thank you, Operator.
Clarence Granger: Good afternoon, everyone, and thank you for joining us. With me today are Clarence Granger, Chairman and Interim CEO, Sheri Savage, CFO, and Cheryl Knepfler, VP of Marketing. Clarence will begin with some prepared remarks about the business, and Sheri will follow with a financial review.
Clarence Granger: Then we'll 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 in 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. Discussion of our financial results will be presented on a non-GAAP basis.
Thank you, operator. Good afternoon, everyone, and thank you for joining us. With me today are Clarence Granger, Chairman and Interim CEO; Sheri Savage, CFO; and Cheryl Canler, VP of Marketing. Clarence will begin with some prepared remarks about the business, and Sheri will follow with the financial review. Then we'll 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 in 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.
Clarence Granger: A reconciliation of GAAP to non-GAAP can be found in today's press release posted on our website.
Clarence Granger: And with that, I'd like to turn the call over to Clarence. Clarence? Thank you, Rhonda, and good afternoon, everyone. We appreciate you joining our second quarter 2025 conference call. I'll start with a brief review of our Q2 results, followed by an update on three areas of focus for us, including new product introduction, flattening the organization, and business structure and processes.
Discussion of our financial results will be presented on a non-GAAP basis. A reconciliation of GAAP to non-GAAP can be found in today's press release posted on our website. With that, I'd like to turn the call over to Clarence Granger.
Thank you, Rhonda, and good afternoon, everyone.
We appreciate you joining our second quarter 2025 conference call.
I'll start with a brief review of our Q2 results, followed by an update on three areas of focus for us, including new product introduction, flattening the organization, and business structure and processes.
Clarence Granger: After that, I'll turn the call over to Sheri for a more detailed financial review. As we discussed during our last earnings call, we anticipate our quarterly revenue will continue to bounce around the $500 million revenue for the balance of this year. With this in mind, we are continuing to focus internally on what we can do to enhance our overall business performance. Specifically, we are focused on three key areas. The first of these is MPI, or New Product Introduction, and component qualifications with our customers. During these slower times, our customers have more time to partner with us on new business qualifications.
After that, I'll turn the call over to Sheri for a more detailed financial review.
As we discussed during our last earnings call, we anticipate our quarterly revenue will continue to bounce around $500 million for the balance of this year.
With this in mind, we are continuing to focus internally on what we can do to enhance our overall business performance.
Specifically, we are focused on three key areas.
The first of these is NPI, or New Product Introduction, and component qualifications with our customers.
During these slower times, our customers have more time to partner with us on new business qualifications.
Clarence Granger: We have already been awarded some new business in our Czech Republic facility that should result in an incremental revenue increase in Q4. We are also working with all of our major customers on qualification by our Fluid Solutions Group. Since the fluid solutions components are going into subsystems that UCT already manufactures, it will not increase our overall revenue. However, it will enhance our margin profile. We expect to see the benefits of this beginning early in 2026.
We have already been awarded some new business in our Czech Republic facility, which should result in an incremental revenue increase in Q4.
We are also working with all of our major customers on qualification by our Fluid Solutions Group.
Since the fluid solutions components are going into subsystems that UCT already manufactures.
It will not increase our overall revenue; however, it will enhance our margin profile.
We expect to see the benefits of this beginning early in 2026.
Clarence Granger: The second focus of our actions has been on flattening the structure and reducing the overall size of the organization to improve efficiency. As I previously mentioned, we had anticipated a return to industry growth in 2024. and we were scaled to grow at a $4 billion run rate to support. Unfortunately, given market conditions, we are currently operating at a $2 billion run rate. With this reality, we have taken steps to flatten and reduce the size of the overall organization. Specifically, we have had significant workforce reductions in April and July, and you can see the results of this effort in the reduction of our OPEX during Q2.
The second focus of our actions has been on flattening the structure and reducing the overall size of the organization to improve efficiency.
As I've previously mentioned, we had anticipated a return to industry growth in 2024.
And we were scaled to grow at A4 to support this.
Unfortunately, given market conditions, we are currently operating at a $2 billion run rate.
With this reality, we have taken steps to flatten and reduce the size of the overall organization.
Specifically, we have had significant workforce reductions in April and July, and you can see the results of this effort in the reduction of our operating expenses during Q2.
Clarence Granger: While we anticipate some churning in this area during Q3, we anticipate this effort to be finalized in the coming months with notable savings heading into Q4. Larger, more complex initiatives, including driving factory efficiencies, consolidating sites, and streamlining organizational layers, are ongoing. While these more comprehensive strategies will take time to realize their full impact, they are critical to strengthening our long-term competitiveness. Importantly, these value creation initiatives are being executed in a way that preserves our ability to scale effectively and capture growth opportunities as market demand returns.
All we anticipate some churning in this area. During Q3, we anticipate this effort to be finalized in the coming months, with notable savings heading into Q4.
Larger, more complex initiatives, including driving factory efficiencies, consolidating sites, and streamlining organizational layers, are ongoing.
While these more comprehensive strategies will take time to realize their full impact, they are critical to strengthening our long-term competitiveness.
Importantly, these value creation initiatives are being executed in a way that preserves our ability to scale effectively and capture growth opportunities as market demand returns.
Clarence Granger: Our third area of focus is on business systems and final integration of our acquisitions, including fluid solutions, services, and HIS, into UCT's core systems and processes. In the Fluid Solutions Group, we just implemented our company-wide SAP business system at the beginning of July. This will add some integration costs in Q3, but will make us much more efficient by the end of the year. We've also completed strategic alignment between our products group and Fluid Solutions on qualification priorities with our customers. This will help us both with new business and improve margins. In the services group, we have identified several strategic new marketing initiatives to enable us to more fully utilize our factories.
Our third area of focus is on business systems and the final integration of our acquisitions, including Fluid Solutions services.
In the UCT's core systems and processes.
And the Fluid Solutions Group, we just implemented our company-wide SAP business system at the beginning of July.
This will add some integration costs in Q3, but it will make us much more efficient by the end of the year.
We've also completed strategic alignment between our Products Group and Fluid Solutions on qualification priorities with our customers.
This will help us both with new business and improved margins.
In the Services Group, we have identified several strategic new marketing initiatives to enable us to more fully utilize our factories.
Clarence Granger: In addition, we have flattened the organization of the services group by combining the manufacturing and business unit functions under one leader. Finally, in our HIS business, we are working on streamlining the facilities and consolidating leadership positions for greater efficiency.
In addition, we have flattened the organization of the Services Group by combining the manufacturing and business unit functions under one leader.
Finally, in our business, we are working on streamlining the facilities and consolidating leadership positions for greater efficiency.
Clarence Granger: These initiatives are all crucial as they enhance operational alignment, drive efficiencies, and capture additional value across the entire organization.
These initiatives are all crucial as they enhance operational alignment, drive efficiencies, and capture additional value across the entire organization.
Clarence Granger: And a quick word on tariffs. While they remain technically paused on semiconductors, uncertainty persists, and we have seen some cost increases throughout our supply chain. While our customers have all said they will assume responsibility for the tariffs that are incurred from components they have specified, most of them have not yet paid us for these additional costs. As such, we continue to take a cautious stance and have accounted for some additional risk in our outlook. So far, we have not seen changes in customer demand relating to tariffs.
And a quick word on tariffs.
While they remain technically paused on semiconductors, uncertainty persists. We have seen some cost increases throughout our supply chain.
While our customers have all said they will assume responsibility for the tariffs that are incurred from components they have specified, most of them have not yet paid us for these additional costs.
As such, we continue to take a cautious stance and have accounted for some additional risk in our outlook.
So far, we have not seen changes in customer demand related to tariffs.
Clarence Granger: And lastly, our CEO search is nearing completion on schedule.
Clarence Granger: We anticipate making an announcement in the coming week.
And lastly, our CEO search is nearing completion on schedule.
We anticipate making an announcement in the coming weeks.
Clarence Granger: In summary, before I turn the call over to Sheri. While near-term business conditions remain fluid, UCT maintains strong confidence in the long-term fundamentals of the semiconductor industry, supported by increasing manufacturing complexity and sustained capital investment in AI. recent months have seen a notable acceleration in AI-related investment fueled by a surge in venture capital funding. Heightened corporate and institutional interest, and a positive market sentiment. Although the trickle-down effects of these investments will vary across the equipment manufacturing supply chain. UCT is well positioned to capitalize as industry momentum builds. particularly through our deep customer partnerships, proven execution, and expanding portfolio of vertically integrated solutions.
In summary, before I turn the call over to Sherry.
While near-term business conditions remain fluid, UCT maintains strong confidence in the long-term fundamentals of the semiconductor industry, supported by increasing manufacturing complexity and sustained capital investment in AI.
Recent months have seen a notable acceleration in AI-related investment, fueled by a surge in venture capital funding.
Heightened corporate and institutional interest, and a positive market sentiment.
Although the trickle-down effects of these investments will vary across the equipment manufacturing supply chain.
UT is well positioned to capitalize as industry momentum builds.
Particularly through our deep customer partnerships, proven execution, and expanding portfolio of vertically integrated solutions.
Clarence Granger: These strengths reinforce our competitive position and enable us to support our customers evolving technology roadmaps with agility and precision.
These strengths reinforce our competitive position and enable us to support our customers' evolving technology roadmaps with agility and precision.
Sheri Savage: With that, I'll turn the call over to Sheri. Thanks, Clarence, and good afternoon, everyone. Thanks for joining us.
On the call over to Sherry.
Sheri Savage: In today's discussion, I will be referring to non-GAAP numbers only. UCT second quarter results reflect the challenges and complexity of navigating a dynamic environment spanning a broad range of customers and product offerings. Amid shifting demand trends, our ability to remain agile, meeting delivery commitments while reducing operating expenses demonstrates the meaningful progress we're making on our cost efficiency initiative. For the second quarter, total revenue came in at $518.8 million, compared to $518.6 million in the prior quarter. Revenue from products was $454.9 million compared to $457 million last quarter. Our services business had a solid quarter with revenues increasing from $61.6 million in Q1 to $63.9 million in Q2.
Thanks, Clarence, and good afternoon, everyone. Thanks for joining us.
In today's discussion, I will be referring to non-GAAP numbers only.
UCT's second quarter results reflect the challenges and complexity of navigating a dynamic environment, spanning a broad range of customers and product offerings.
Amid shifting demand trends, our ability to remain agile—meaning delivery commitments while reducing operating expenses—demonstrates the meaningful progress we're making on our cost efficiency initiatives.
For the second quarter, total revenue came in at $518.88 million.
Revenue from products was $454.9 million compared to $457 million last quarter.
Our services business had a solid quarter, with revenues increasing from $61.6 million in Q1 to $63.9 million in Q2.
Sheri Savage: Total gross margin for the second quarter was 16.3% compared to 16.7% last quarter. Product cost margin was 14.4% compared to 14.9% in Q1. and Services was 29.9% compared to 29.8% last quarter. Margins continue to be influenced by fluctuations in volume, mix, manufacturing region, and related tariffs, as well as material and transportation costs, so there will be variances quarter to quarter. Operating expense for the quarter was $56.1 million compared with $59.4 million in Q1. As a percentage of revenue, operating expenses were 10.8% versus 11.5% in Q1. This decrease reflects the positive impacts of our cost reduction initiatives in the quarter, as well as a return to normal operating level following higher year-end costs seen in Q1.
Total gross margin for the second quarter was 16.3%, compared to 16.7% last quarter.
Products Coast margin was 14.4% compared to 14.9% in Q1.
And services was 29.9% compared to 29.8% last quarter.
Margins continue to be influenced by fluctuations in volume, mix, manufacturing region, and related tariffs.
As well as material and transportation costs, there will be variances quarter to quarter.
Operating expenses for the quarter were $56.1 million, compared with $59.4 million in Q1.
As a percentage of revenue, operating expenses were 10.8% versus 11.5% in Q1.
This decrease reflects the positive impacts of our cost reduction initiatives in the quarter.
Sheri Savage: As Clarence noted, we have incremental SAP go-live costs flowing into Q3. However, we will continue to implement broader cost-saving actions that will further reduce offsets incrementally over the long term. Total operating margin for the quarter came in at 5.5% compared to 5.2% last quarter. Margin from our products division was 4.8% compared to 4.6%. and services margin was 10.5% compared to 10.2% in the prior Our second quarter tax rate remained flat at 20%. Our mix of earnings between higher and lower tax jurisdictions can cause our rate to fluctuate throughout the year. For 2025, we expect the tax rate to be in the low to mid.
As well as a return to normal operating levels following higher year-end costs seen in Q1.
As Clarence noted, we have incremental SAP go-live costs flowing into Q3.
However, we will continue to implement broader cost-saving actions that will further reduce Opex incrementally over the long term.
Total operating margin for the quarter came in at 5.5%, compared to 5.2% last quarter.
Margin from our products division was 4.8% compared to 4.6%.
And services margin was 10.5%, compared to 10.2% in the prior quarter.
Our second quarter tax rate remained flat at 20%.
Our mix of earnings between higher and lower tax jurisdictions can cause our rate to fluctuate throughout the year.
For 2025, we expect a tax rate to be in the low to mid 20s.
Sheri Savage: Based on 45.3 million shares outstanding, earnings per share for the quarter were $0.27, on net income of $12.1 million. compared to $0.28 on net income of $12.7 million in the prior quarter. Turning to the balance sheet, our cash and cash equivalents were $327.4 million compared to $317.6 million at the end of last quarter. Cash flow from operations was $29.2 million. compared to $28.2 million last quarter, mostly due to working capital efficiency. Earlier this quarter, we repurchased 182,000 shares at a cost of $3.4 million as part of our repurchase program. The tariff situation for semiconductors remain unchanged, but we are seeing some impact throughout our supply chain.
Based on 45.3% earnings per share for the quarter, were 27 cents on net income of $12.1 million, compared to 28 cents on net income of $12.7 million in the prior quarter.
Returning to the balance sheet, our cash and cash equivalents were $327.4 million compared to $317.6 million at the end of last quarter.
Cash flow from operations was $29.2 million compared to $28.2 million last quarter, mostly due to working capital efficiency.
Earlier this quarter, we purchased 182,000 shares at a cost of $3.4 million as part of our repurchase program.
Sheri Savage: We will continue to monitor the landscape and make the necessary adjustments to our business to maximize efficiency and protect profitability. Given the heightened uncertainty and limited visibility within the semiconductor market at this time, we project total revenue for the third quarter of 2025 to be between $480 million and $530 million.
The tariff situation for semiconductors remains unchanged, but we are seeing some impact throughout our supply chain.
We will continue to monitor the landscape and make the necessary adjustments to our business to maximize efficiency and protect profitability.
Given the heightened uncertainty and limited visibility within the semiconductor market at this time.
Sheri Savage: We expect EPS in the range of 14 cents to 30.
We project total revenue for the third quarter of 2025 to be between $480 million and $533 million.
Operator: And with that, I'd like to turn the call over to the operator for. Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the 1 on your telephone keypad. You will hear a prompt that your hand has been raised. And should you wish to cancel a request, please press star followed by the 2. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Thank you.
We expect EPS in the range of $0.14 to $0.34.
And with that, I'd like to turn the call over to the operator for questions.
Thank you, ladies and gentlemen. We will now begin the question-and-answer session. Should you have a question, please press star followed by the 1 on your telephone keypad. You will hear a prompt that your hand has been raised. And should you wish to cancel your request, please press star followed by the 2. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question.
Charles Shi: And your first question comes from the line of Charles Shi from Mid Ham. Please go ahead. Hi, thanks for taking my questions. Clarence and Sheri, maybe the first one, I think you probably didn't address the Q2 revenue went a little bit above the midpoint of your Q2 guidance. Mind if you kind of walk us through what was the upside there in Q2? Well, we had a little bit of upside from China. That that was helpful. I'm trying to think of what other areas. We did have some... General increase in shipments from one of our US sites, our Austin site.
The question comes from the line of Charles She from Mid Ham. Please go ahead.
Hi. Yeah, thanks for taking my questions. Uh, Clarence Granger, maybe the first one. I I think you probably didn't address the Q2 revenue. It went a little bit about the me point of your.
Q2 guidance in mind, if you could walk us through what the upside was in Q2?
Well, we had a little bit of upside from China, uh, that was helpful. Um,
Um, trying to think of what other areas.
Um, we did have some, um,
Clarence Granger: We also had an increase in our services revenue. I think those are the major areas. where we had increases. Got it.
General increase in shipments from, uh, one of our U.S. sites, our Austin site. We also had an increase in our services revenue. Um, I think those are the major areas.
Where we had increases?
Clarence Granger: So just follow up on the China business. So I think the expectation a quarter ago was China revenue probably would come off the bottom in Q1, a little bit better in Q2, and the second half going to be better than first half. Is that still the case? Yeah, again, this Clarence. Yes, that's, that is true. But we do want to make sure we characterize this appropriately. I know I brought up the China revenue, because I know it's a common question, but the China revenue represents about 7% of total UCT revenue. So it's not huge, but I will give you the numbers.
Got it. Um, so um, just follow up on the China business. So I think, uh, the expectation a quarter ago was...
Uh, China revenue probably come off the bottom, meaning got them in Q1, a little bit better in Q2, and the second half going to be, uh, better than the first half. Is that still the case?
Clarence Granger: The numbers in Q1 were about 21 million. And in Q2, they were about 35 million. So it's a significant increase. And we've said that we expect on an ongoing basis in China and our China for China strategy to be running about 40 to 50 million a quarter with revenue out of our Chinese-based customers. And so it feels like we're pretty close to being where we thought we would be at this time. Thanks, Clarence, for the extra color there.
Yeah, uh again, this is Clarence. Um, yes, that's uh, that is true. Um, but we do want to make sure we characterize this appropriately. I know I brought up the China revenue because I know it's a common question, but the China revenue represents about 7% of total UCT revenue. So it's not huge, but I will give you the numbers. The numbers in Q1 were about $21 million, and in Q2, they were about $35 million.
So it's a significant increase and we've said that we expect on an ongoing basis in China and our China for China strategy to be running about 40 to 50 million a quarter, um, with uh, Revenue out of our chinese-based customers. And so, it feels like, we're pretty close to being where we thought we would be at this time.
Clarence Granger: Maybe I'll ask my last question. So you said at the beginning, it sounds like you're still expecting $500 million per quarter run rate through the rest of the year, but I think you also mentioned that some new wings from your check side is going to contribute a little bit into Q4. I'm not sure if you're alluding to maybe Q4 revenue numbers may grow sequentially from Q3, or maybe I overread that. Yeah, you didn't necessarily overread that. We're not in a position where we're ready to commit the Q4 numbers, but it certainly feels like there's an upward bias in Q4.
Uh, thanks Clarence for the, for the actual color there. Um, maybe I ask my last question. Um, so you said at the beginning, yours sounds like you're still expecting 500 milliamp per quarter, run rate, uh, through the rest of the year. But I think you also mentioned some new wings, uh, from go check, uh sites. Uh, it's going to contribute a little bit, uh, into Q4. Uh, not sure if you are alluding to maybe Q4 Revenue numbers, uh, May grow sequentially from Q3 or or may maybe I I over read that.
Clarence Granger: We're kind of feeling pretty good about our directionality towards the end of the year. Not that the revenue is going to increase that dramatically, but we think by that time, we'll see the impacts of a lot of the cost reductions that we've implemented and some of the new business opportunities and some of the further integration of fluid solutions. So we're cautiously optimistic that the fourth quarter will get better. Thanks.
Thank you. Yeah, you didn't necessarily overread that we're not in a position where we're ready to commit to the Q4 numbers. But it certainly feels like there's an upward bias in Q4. We're kind of feeling pretty good about our directional directionality towards the end of the year. Not that the revenue is going to increase that dramatically, but we think.
By that time, we'll see the impacts of a lot of the cost reductions that we've implemented and the sum of the new business opportunities, as well as some of the further integration of Fluid Solutions. So, we're uh,
Cautiously optimistic that the fourth quarter will get better.
Charles Shi: That's all from me. Thank you.
Thanks, that's all from me.
Okay.
Krish Sankar: And your next question comes from the line of Krish Sankar from TD Cowen. Please go ahead. Thanks for taking my question.
Thank you. And your next question comes from the line of Chris Sankar from Ted Cohen. Please go ahead.
Cheryl Knepfler: Clarence, I had a couple of questions. Number one, thanks to the color on China, you said it might run rate at about 35 to 40 million, just under 10% of your revenues. I'm kind of curious, you know, last week there was some AI rules which said that, you know, they might look into components of semi caps that are selling into China. So I'm kind of curious, have you looked into that? And do you think there's a risk that this revenue that you're selling into Chinese semi caps could go to zero?
Thank you very much, question, a couple of questions. Uh, number 1, you can answer the call on China. You said it's my drone great at about 35 to 40 million, uh, just under 10% of your revenues. I'm going to kill you is, you know, last week there was some AI rules which said that, you know, they might look into components of semi caps that are selling into China. So I'm kind of curious. Have you looked into that and do you think there's a risk that this Revenue that you're selling into Chinese semi caps to go to zero?
Cheryl Knepfler: Yeah, I'm going to let the our Analyst, market analyst Cheryl Knepfler answer that one.
Yeah, I'm going to let, uh, our
Cheryl Knepfler: Cheryl? So yeah I mean obviously there there's always a risk that that it could go forward at a different level but at this point we do see that the areas that we're selling to are being supported broadly for multiple parts of the industry and so do expect to be able to continue to sell for the the upcoming period. Gotcha.
Uh analysts uh Market analyst Cheryl Smith answer that 1 ch. Um, so yeah, I mean obviously there there's always a risk that that it could go forward um, at a different level. But at this point, we do see that the areas that we're selling to are um being supported broadly for multiple parts of the industry and so do expect to be able to continue to sell for the the upcoming period.
Cheryl Knepfler: So just to clarify, Cheryl and Clarence, $35 million last quarter, you think it's going to be $35 to $40 million. You think that run rate... So far it's sustainable, and you've not heard anything from the government or anybody about potential caps on that. That's correct. We have not heard anything about potential caps. We're pretty optimistic. Don't forget, we've been there for 20 years. So it's not like we're newbies to the country. And our customers, our major customers, some of them have actually been customers of ours for 20 years. So we're very confident in our relationship there.
And, uh, $35 million last quarter. You think it’s going to be $35 to $40 million? You think that’s a run rate?
so, for a sustainable,
And you're not heard anything from the government or anybody about uh potential uh caps on that.
That's correct. We have not heard anything about dental caps.
We're pretty optimistic. Don't forget, we've been there for 20 years.
Cheryl Knepfler: And so far, we're very confident in what's going on with the government situation relative to us.
So, it's not like we're newbies to the country, and our customers are major customers. Some of them have actually been customers of ours for 20 years. So, we're very confident in our relationship there. And so far, we're very confident in what's going on with the government situation relative to us.
Clarence Granger: I think China's revenues are much better in the second half. I'm kind of curious, like, you know, when you look into... Compared to your earnings call three months ago, did the commentary from China get marginally better or was it the same thing compared to three months ago in terms of China demand either through AMAT and LAM or through your China Semicap customers in the second half of this year? I think I mentioned, this is Clarence again, I think I mentioned at one point at the end of Q1 that one of our customers was having some challenges with one of their customers and as a consequence weren't taking at the same rate that they might normally have been taking at.
Got it, got it, got it. Another question. You kind of said that, you know, um,
I think China.
Better into the second half, I'm kind of curious. Like, you know, when you look into...
Regarding your earnings call three months ago, did the commentary from China get marginally better, or was it the same compared to three months ago? In terms of China demand, either through AMAT and Lamb or through your China semi customers coming in the second half of this year?
Clarence Granger: We feel that those issues have been resolved and our customer is now taking at a rate that's more in line with what we've traditionally been expecting from them. And if we can season one follow-up to that, Clarence, I think last time you also mentioned it is one Chinese customer and also there was one European customer who had some delays which many people assumed to be ASMI. I'm kind of curious, has that European customer issue been resolved? Yes, we shipped units to them as well in the quarter. Thank you very much, Clarence. Really appreciate the call.
I think I mentioned this to Clarence again. I think I mentioned at one point at the end of Q1 that one of our customers was having some challenges with one of their customers, and as a consequence, they weren't taking at the same rate that they might normally have been taking at. We feel that those issues have been resolved.
And our customers are now taking at a rate that's more in line with what we've traditionally been expecting from them.
And if we can season, one follow-up to that, Clarence. I think last time we also mentioned it is one Chinese customer. Also, there was one European customer who had some delays, which many people assumed to be ASMI. I'm kind of curious as to whether that European customer should be resolved.
Yes, we shipped units to them as well in the quarter.
Kristian Schwab: You're welcome. Thank you.
Thank you so much; I really appreciate the call.
You're welcome.
Kristian Schwab: And your next question comes from the line of Kristian Schwab from Craig Hallam Capital Group. Please go ahead. Great. Thanks for taking my question. You know, kind of given...
Thank you. And your next question comes from the line of Christian Schwab from Craig-Hallum Capital Group. Please go ahead.
Cheryl Knepfler: you know, the tremendous strength in AI, as well as, you know, rumors of, you know, what looks to be increased investment in Samsung in Austin, Texas, which I assume you'll benefit from. Do you guys have an initial look or thought when market demand possibly returns as soon as calendar 26, what the WFP could look like yet?
Thank you. Great, thanks for taking my question. You know, kind of giving.
You know, the tremendous strength of AI, uh, as well as, you know, rumors of what looks to be increased investment in Samsung, and in Austin, Texas, uh, which I assume you'll benefit from. Um, do you guys have an initial look or thought? Um,
When market demand possibly returns. As soon as calendar 26 with wfp, could look like yet,
Cheryl Knepfler: So this is Cheryl. As we look at WFE in 2026, there are a number of FABs that are expected to come online, some of which are being pulled in from 2027 into 2026. So we do see the opportunity for 2026 to have incremental growth from 2025. At this point, not certain the level, but certainly possible for, you know, high single-digit, low double-digit type of. Okay, so kind of in line with some of the optimists, third party research out there, kind of at 8 to 12%.
So this is Cheryl. Um, as we look at WFB in 2026, there are a number of fabs that are expected to come online, some of which are being pulled in from 2027 into 2026. So we do see the opportunity for 2026 to have incremental growth from 2025. Um, at this point, not certain the level, um, but certainly possible for, um, you know, high single-digit, low double-digit type of growth.
Cheryl Knepfler: And then my follow up question regarding that, in a situation such as that, would you expect your company to be able to outgrow WFE, you know, in a double digit range, like you have historically done? and Upturn. We certainly see the mix of products and our share gains as supporting that opportunity. So, definitely going forward, the balance, most of the companies have brought in EUV, and so that initial sort of disconnect that happens when a new segment brings in some of those technologies has passed for both DRAM and for So, we expect our segments to grow with WFE, and we should be able, we expect to outperform them overall.
Okay, so kind of in line with some of the optimists uh third-party research out there. It's kind of the 8 to 12 percent uh and then my my follow-up question, uh, regarding that in a situation such as that, uh, would you expect uh, your company to be able to outgrow wfb, you know, in a double digit range like you have, uh, historically dumb
Ended up turning.
Um, we certainly see the mix of products, and our share gains as supporting that opportunity.
Um, so definitely going forward, uh the balance. Um, most of the companies have brought in euv and so that that initial sort of Disconnect that happens when a new segment um brings in some of those Technologies. Um has passed for both dram and for boundaries. So we expect our segments to grow as wfb and we should be able to, we expect to outperform them overall.
Kristian Schwab: Excellent. No other questions. Thank you.
Excellent. No other questions. Thank you.
Edward Yang: And your next question comes from the line of Edward Yang from Oppenheimer. Please go ahead. Hi, thanks for taking my question. Clarence, you mentioned being, you know, cautiously optimistic on the 4Q, and you listed a number of different items, but if you were to rank order them, you talked about new business wins and qualifications, you talked about China a bit, you know, the pride questionnaire asked about, you know, AI strength. You know, if you were to rank these items in order, you know, how would they shake out and your level of visibility on each?
Thank you. And your next question comes from the line of Edward Young from Oppenheimer. Please, go ahead.
Did a number of different, um, items. But if you were to rank order, then, uh, you talked about new business wins and qualifications, uh, you talked about China a bit. Um, you know, the PRIDE questionnaire asked about, you know, AI strength. Um, you know, if you were to rank these items in order, you know, how would, how would they, uh, shake out and, uh, your level of visibility in on each?
Clarence Granger: Well, the new business win is the most tangible one that we can tie to real near-term market gains. We actually have orders. going forward. So we're confident in that. The China situation I would say, you know, we feel pretty confident, but that you know, could change, obviously. I guess probably the thing that still remains the most frustrating for me is the darn tariff situation. It doesn't feel like it's going to be a huge cost to us. This last quarter, it looked like about $500,000 in the quarter, but our customers took about $3 million, or we incurred about $3 million worth of tariff charges associated with the quarter.
Well, the new business win is the most tangible one that we can tie to real near-term market gains. We actually have orders.
Um, going forward, so we're confident in that. But the China situation, I would say, you know, we feel pretty confident. But that, uh,
You know, that could change obviously. Um, I guess probably the thing that still remains the most frustrating for me is the darn tariff situation. It doesn't feel like it's going to be a huge cost to us. This last quarter, it looked like about $500,000 in the quarter. Um, but, um, our customers, uh,
Clarence Granger: And we've been paid by the customers about $300,000, and they claim they're going to pay us another $2 million, but we haven't got it yet. And so I guess that causes us to be a little... a little concerned, although we've gotten verbal commits from them.
Took about $3 million, or we incurred about $1 million worth of tariff charges associated with the quarter. And, uh, we've been paid by the customers about $300,000. Um, and they claim they're going to pay us another $2 million, but we haven't got it yet. And so I guess that causes this to be a little...
Clarence Granger: I forget, what was the other one that you, oh, AI. Honestly, Cheryl, you know, AI is, that's a little distant from us. I mean, we certainly know about it and hear about it, and it should have a favorable impact on us, but we don't have specific orders tied to that right now.
A little concerned, uh, although we've gotten verbal commits from them. Um, I forget, what would be, what was the other 1 that? You? Oh AI, um, honestly, uh, Cheryl, uh, you know, AI is that's a little distant from us. I mean, we certainly know about it and hear about it and it should have a favorable impact on us.
But, um, we don't have specific orders tied to that right now.
Clarence Granger: And following up on the tariff reimbursement, is it your leading edge customers that haven't paid you for the balance? Or is it I'd just like to understand where the disagreement might be, or... No, no, no. Yeah, there's no disagreement. Don't get me wrong. They're just slow to pay. They're our largest customers. Got him. That was one. No, no, no, there's absolutely no credit risk. a matter of getting the documentation and the format that they're comfortable with. I'm comfortable they will eventually pay us, but the other downside with the darn tariffs is the costs, right? We're spending, we'll probably end up spending about $1 to $2 million a year in administrative costs to deal with it.
And following up on the, uh, the tariff reimbursement. Um, is it your Leading Edge customers that haven't paid you for the balance? Or is it, uh, you know,
Like, just like to understand where the, the disagreement might be. Or, or no, no, no, no, no. I suppose, yeah, there's no disagreement. Don't get me wrong. They’re just slow to pay. They are our largest customers.
Got it.
No, no, no, there. There's absolutely no credit risk. It's just.
A matter of getting the documentation and the format that they're comfortable with.
Clarence Granger: So my guess is over the time, I mean, it's not... Overwhelming, but my guess is that over on an annualized basis, we'll probably spend about two to three million a year dealing with tariff costs.
I'm comfortable they will eventually pay us, but the other downside with the darn tariffs is the cost, right? We're spending—we'll probably end up spending about $1 to $2 million a year in administrative costs to deal with it. So my guess is over time, I mean, it's not.
Clarence Granger: And so, what does that work out to be about? six cents a year. So we could be ending up a penny and a half each quarter that we have to deal with that we're frustrated about. That's helpful.
Overwhelming. But my guess is that, on an annualized basis, we'll probably spend about $2 to $3 million a year dealing with tariff costs. And so, um, what does that work out to be about, uh,
6 cents a year, so we could be ending up with a penny and a half each quarter that we have to deal with. We're frustrated about that.
Sheri Savage: And final question for me, I'd just like to better understand the Goodwill impairment charge, you know, what was driving...
Sheri Savage: Yeah, hi. This is Sheri. The key thing is, our stock price has gone down with the overall market uncertainty. And unfortunately, with that happening, our carrying value of that goodwill on our books was lower than the market cap of the company. So that's what basically triggered the accounting of that. It's purely a non-cash charge, obviously. But that doesn't mean that we're not very bullish about those businesses on a go-forward basis in terms of what we think that they can do. It's just more of our assumptions now are a little more conservative than when we initially bought the business when we put our goodwill calculation in place.
Okay, that's helpful and and final question for me um I'd just like to better understand the Goodwill impairment charge. You know what was driving that
Yeah. Hi. Um, this is Sherry Ed. Um, the the key thing is, um, our soft price has had gone down, um, with the overall Market uncertainty. And unfortunately, um, with that happening, our carrying value of those that Goodwill on our books was was lower than than the market cap of the company. So, that's
What basically, um, triggered the accounting of that, um, it's purely a non-cash charge, obviously. Um, but that doesn't mean that we're not, um,
Sheri Savage: So it's really a factor of our market cap at this point.
Very uh, bullish about those businesses on a go forward basis. In terms of what we think that they can do, it's just more of our, our assumptions. Now are a little more conservative than when we initially bought the business, when we put our Goodwill, um, uh, calculation in place. So, um, it's just, it's really a factor of our, our market cap at this point.
Edward Yang: All right, thank you for that clarification.
Edward Yang: Thank you.
All right, thank you for that clarification.
Thank you.
Krish Sankar: And your next question comes from the line of Krish Sankar from TVKWN. Please go ahead. Yeah, hi. Thanks for making my follow-up. Clarence, I have two questions. And first, I do appreciate the candidness about China and tariffs. I'm kind of curious. I understand China tariffs is on top of your mind. I'm just really honestly curious if the $35 to $40 million in revenue you get from China's semi-caps, do you worry that that could ever go to zero? Or do you think realistically that it's not a possible?
Thank you. And your next question comes from the line of Chris Sankar. Please go ahead.
Um, I understand China Talus is on top of your mind. I'm just really, honestly curious. If the $35 to $40 million in revenue you get from China semi-caps, do you worry that that could ever go to zero? Or do you think realistically that is not a possibility?
Clarence Granger: Well, first of all, I want to make clear, we don't have China tariffs, because all of the stuff that we make in China stays in China and all the stuff that we make outside of China does not go into China. So we really don't have a China tariff issue. There would only be an issue if for some reason, something happened to our long stream revenue from China. I don't think there's any jeopardy whatsoever. As I said, we have strong relationships with our existing customers. And we can't see them leaving us. Obviously, there's always some political potential political ramifications.
Well, first of all, I want to make clear, we don't have China tariffs.
Because all of the stuff that we make in China stays in China, and all this stuff,
Clarence Granger: But we are not typically, we are supplying what's specified by the customer. We're not supplying them technology that they don't have available to them already. So I don't think we're a real threat from a technological standpoint, so I don't think there's much danger of us having an issue with China.
That we make outside of China, does not go into China, so we really don't have a China. Tariff issue there would only be an issue. If for some reason, uh, something happened to our long stream revenue from from China. I don't think there's any Jeopardy whatsoever. As I said, we have strong relationships with our existing customers. Um, and and we can't see them uh, leaving us obviously. There's always some political potential political ramifications, but we are not typically Supply. We are supplying. What specified by the customer? We're not supplying them, uh, technology that they don't have available to them already. So, um,
I don't think we're a real threat from a technological standpoint. Um so I don't think there's much danger of us having an issue with China.
Krish Sankar: I apologize, I didn't mean Chinatown. I meant San Francisco. Let me rephrase the question. Do you worry about the $35 to $40 million that you sold into China, semi-caps, going to zero? I worry about every single one of our customers, every single place in the world, but I don't worry about them any more than I worry about our other customers and focus on our growth with other customers. Fair enough. Thanks for that, Clarence. And then one quick question.
Glad to be in China. I've been satisfied in general, but let me rephrase the question. Do you worry about the $35 to $40 million? That is, selling to China semiconductors going to zero.
I worry about every single one of our customers, every single place in the world.
But I don't worry about them any more than I worry about our other customers.
And focus on our growth with other customers.
Cheryl Knepfler: I'm just kind of curious, when you look broad based among all your customer base, U.S., China, whatever it is, how do you think the inventory situation is of your gas panels, components, et cetera, is like, do you think they're like drawing it down enough that they sort of start buying it more? Or do you think there's still like a little bit of a lag effect purely because you still have some inventory of your components on their balance sheet?
Fair enough. Thanks for that, uh, plans. Uh, and then 1, uh, 1 quick question. I'm just going to curious. Uh, well it looks broad days, uh, amongst all your customer base us, China, whatever it is. Um, how do you think the inventory situation is of your cash, balance components Etc. Is like, do you think there are like drawn it down enough that they got to start buying it more, or do you think there's still like a little bit of a lag effect? Clearly because they still have some inventory of your components, uh, on the balance sheet.
Cheryl Knepfler: So this is Cheryl. I think there's probably a little bit left, but I don't think that it's significant at this point. I think our largest customer was the one that we had the most exposure with. They are continuing to work down that inventory in part by sending it back to us to be reconfigured. So we do see that happening. So I think they are now getting to a point where they don't have very much, and it may not align with what some of their current shipment demand is. So we do see that certainly cleaning up a lot more, but, you know, obviously.
so this is Cheryl, um,
I think there's probably a little bit left, but I don't think that it's significant. Um, at this point, I think.
Cheryl Knepfler: everyone, you know, will periodically find a series of things stuck in a corner. So I think I think that's kind of where we are now versus, you know, a broad amount of inventory that's sitting.
Um, our largest customer was the one that we had the most exposure with. They are continuing to work down that inventory in part by sending it back to us to be reconfigured. Um, so we do see that happening. So I think they are now getting to a point where they don't have very much, and it may not align with what some of their current shipment demand is. So, um, we do see that certainly cleaning up a lot more. But, you know, obviously,
Everyone, you know, will periodically find a series of things stuck in a corner. So I think that's kind of where we are now versus, you know, a broad amount of inventory that's sitting.
Cheryl Knepfler: Thanks a lot, Cheryl. Thanks, Clarence. Thank you.
No, the terms of our shell, thanks.
You're welcome.
Operator: There are no further questions at this time.
Clarence Granger: I will now hand the call back to Clarence Granger for any closing remarks. Thank you everyone for joining us on our call today, and we look forward to seeing you again in October. Thank you.
Thank you. There are no further questions at this time. I will now hand you a call back to claim on screening for any closing remarks.
Thank you everyone for joining us on our call today and we look forward to seeing you again in October. Thank you.
Operator: This concludes today's call. Thank you for participating. You may all disconnect.
This concludes today's call, thank you for participating. You may all disconnect.