Q2 2026 Ultra Clean Holdings Inc Earnings Call

August 3, 2026

Operator 2: Good afternoon, ladies and gentlemen, and welcome to the Ultra Clean Q2 2026 earnings call. At this time, all lines are in a 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, 3 August 2026. I would now like to turn the conference over to Rhonda Bennetto of Investor Relations.

Operator: Good afternoon, ladies and gentlemen, and welcome to the Ultra Clean Q2 2026 earnings call. At this time, all lines are in a 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, 3 August 2026. I would now like to turn the conference over to Rhonda Bennetto of Investor Relations.

Speaker #1: Good afternoon, ladies and gentlemen, and welcome to the Ultra Clean Q2 2026 earnings call. At this time, all lines are in listen-only mode.

Speaker #1: 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, August 3, 2026.

Speaker #1: I would now like to turn the conference over to Rhonda Bennetto of Investor Relations.

Speaker #2: Thank you, operator. Good afternoon, everyone, and thank you for joining us. With me today are James Xiao, CEO; Sheri Savage, CFO; and Mike Kiehl, CFO beginning August 5.

Rhonda Bennetto: Thank you, operator. Good afternoon, everyone, and thank you for joining us. With me today are James Xiao, CEO, Sheri Savage, CFO, and Michael Keough, CFO, beginning 5 August. James will begin with some prepared remarks about the industry and highlight some of the opportunities ahead for UCT. 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. We assume no obligation to update them after this call. 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.

Speaker #2: James will begin with some prepared remarks about the industry and highlight some of the opportunities ahead for UCT. Sheri will follow with the financial review, and then we'll open up the call for questions.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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 James.

Rhonda Bennetto: With that, I'd like to turn the call over to James. James, please go ahead.

Speaker #2: James, please go ahead.

Speaker #3: Thank you, Rhonda, and good afternoon, everyone. We appreciate you joining us for our Q2 2026 earnings call. This afternoon, I will discuss the industry environment and the trends shaping our customers' investments, provide an update on our 3.0 strategy, and highlight how we are positioning UCT to deliver sustainable growth and long-term value.

James Xiao: Thank you, Rhonda, and good afternoon, everyone. We appreciate you joining us for our Q2 2026 earnings call. This afternoon, I will discuss industry environment and the trend shaping our customer investment, provide an update on our execution against UCT 3.0 strategy, and highlight how we are positioning UCT to deliver sustainable growth and long-term value. Following that, Sheri will provide a financial update, and then we will open up the call for questions. Throughout the second quarter, we saw increased demand across both our products and service businesses, reflecting healthy activity across all our end markets. Momentum is building as AI-driven investment reshapes the semiconductor capital equipment landscape, driving increased volume and complexity in the systems and components our customers require. As agentic AI becomes more mainstream, the incremental demand extends well beyond today's GPU-intensive training clusters to inference workloads utilizing higher volumes of CPU compute.

Speaker #3: Following that, Sheri will provide a financial update, and then we will open up the call for questions. Throughout the second quarter, we saw increased demand across both our products and services businesses.

Speaker #3: Reflecting healthy activity across all our end markets, momentum is building as AI-driven investment reshapes the semiconductor capital equipment landscape, driving increased volume and complexity in the systems and components our customers require.

Speaker #3: As agentic AI becomes more mainstream, the incremental demand extends well beyond today's GPU-intensive training clusters. To influence workloads, we're utilizing higher volumes of CPU compute.

Speaker #3: For companies like UCT, the implications are particularly meaningful, because every layer of semiconductor manufacturing must scale to support this next wave of infrastructure investment and AI chip demand expansion beyond GPU and HBM.

James Xiao: For companies like UCT, the implications are particularly meaningful because every layer of semiconductor manufacturing must scale to support this next wave of infrastructure investment and AI chip demand expansion beyond GPU and HBM. As volume and complexity increases, customers are engaging more strategically with trusted partners like UCT earlier in the development cycle to help ensure manufacturing readiness and accelerated execution. As technologies advance, we're confident that we will play an even more important role in our customers' long-term technology roadmaps and capacity expansion. That confidence is reinforced by the unprecedented visibility our customer are sharing with us now. They are extending their forecast and giving us longer planning horizons so we can make strategic decisions regarding capacity, supply chain readiness, engineering resources, and talent investment that support their product pipeline. As AI infrastructure scales, execution speed and innovation velocity at scale will set UCT apart from the competition.

Speaker #3: As volume and complexity increase, customers are engaging more strategically with trusted partners like UCT earlier in the development cycle to help ensure manufacturing readiness and accelerated execution.

Speaker #3: As technologies advance, we're confident that we will play an even more important role in our customers' long-term technology roadmaps and capacity expansion. That confidence is reinforced by the unprecedented visibility our customer is sharing with us now.

Speaker #3: They are extending their forecasts and giving us longer planning horizons, so we can make strategic decisions regarding capacity, supply chain readiness, engineering resources, and talent investment that support their pipeline.

Speaker #3: As AI infrastructure scales, execution speed and innovation velocity at scale will set UCT apart from the competition. Our customers need partners that can accelerate product development, qualify new technology faster, execute flawless production ramps, and support increasingly complex global manufacturing operations.

James Xiao: Our customers need partners that can accelerate product development, qualify new technology faster, execute flawless production ramp, and support increasingly complex global manufacturing operations. UCT is becoming more deeply embedded in their success because these are the capabilities that consistently set us apart. UCT 3.0 is transforming the way we execute. Being ramp-ready is the foundational to our customer-first mindset and long-term growth strategy. It is ensuring we're prepared to support our customers whenever and wherever they need us. Over the past couple of months, we have built out an additional 26,000 square feet of clean room space in our Malaysia facility and will be increasing our capacity within the current footprint in Singapore and the Czech Republic over the coming quarters. With those expansions, we should be able to support a $4 billion annualized revenue run rate or 200 billion WFE by the middle of 2027.

Speaker #3: UCT is becoming more deeply embedded in their success because these are the capabilities that consistently set us apart. UCT 3.0 is transforming the way we execute.

Speaker #3: Being ramp-ready is foundational to our customer-first mindset and long-term growth strategy. It means ensuring we're prepared to support our customers whenever and wherever they need us.

Speaker #3: Over the past couple of months, we have built out an additional 26,000 square feet of cleanroom space in our Malaysia facility and will be increasing our capacity within the current footprint in Singapore and the Czech Republic over the coming quarters.

Speaker #3: With those expansions, we should be able to support a $4 billion annualized revenue run rate, or $200 billion WE, by the middle of 2027.

Speaker #3: We have begun the process of evaluating future capacity requirements, strategic geographic locations, and greenfield opportunities to support a $5 billion revenue run rate, or $250 billion WE, while continuing to align our investment with our customers' long-term demand outlook and commitment.

James Xiao: We have begun the process of evaluating future capacity requirements, strategic geographic locations, and greenfield opportunities to support a $5 billion revenue run rate of 250 billion WFE. We'll continue to align our investment with our customers' long-term demand outlook and commitment. Our NPX initiative, which integrates new product development, introduction, and transfers, reached a significant milestone recently. We have launched our first NPX Center of Excellence in Hillsboro, Oregon, designed to engage earlier and more closely with our customers. This will accelerate product qualification, improve the transition from development to high-volume manufacturing, and strengthen our position as a preferred co-innovation partner. By demonstrating our value from design to production, we're increasing our opportunities to win customers' new products that support a favorable long-term margin profile. Digital transformation, the third pillar of our UCT 3.0 strategy, is enabling a more efficient, data-driven enterprise.

Speaker #3: Our NPX initiative, which integrates new product development, introduction, and transfers, reached a significant milestone recently. We have launched our first NPX Center of Excellence in Hillsborough, Oregon, designed to engage earlier and more closely with our customers.

Speaker #3: This will accelerate product qualification, improve the transition from development to high-volume manufacturing, and strengthen our position as a preferred co-innovation partner by demonstrating our value from design to production.

Speaker #3: We're increasing our opportunities to win customers' new products that support a favorable long-term margin profile. Digital transformation: the third pillar of our UCT 3.0 strategy.

Speaker #3: It is enabling a more efficient, data-driven enterprise. We have begun modernizing our systems, processes, and data infrastructure, starting with the ones that best support our ramp-readiness efforts.

James Xiao: We have begun modernizing our systems, processes, and data infrastructure, starting with the ones that best support our ramp readiness efforts. These initiatives has already improved operational visibility, accelerated decision-making, and enabled faster execution across our global operations. Combined with automation, advanced analytics, and AI-enabled capabilities, we're increasing productivity and scaling the business more efficiently as customer demand accelerates. We believe our global manufacturing footprint, engineering expertise, operational discipline, and ability to execute with speed and agility position us to capture a greater share in the years ahead. Our objective is straightforward: to deepen our strategic co-innovation partnerships, outgrow the market we serve, and create sustainable long-term value for our shareholders. Before I turn to the financial review, I'd like to announce that this is going to be Sheri's last earnings call as CFO of UCT.

Speaker #3: These initiatives have already improved operational visibility, accelerated decision-making, and enabled faster execution across our global operations. Combined with automation, advanced analytics, and AI-enabled capabilities, we're increasing productivity and scaling the business more efficiently as customer demand accelerates.

Speaker #3: We believe our global manufacturing footprint, engineering expertise, operational discipline, and ability to execute with speed and agility position us to capture a greater share in the years ahead.

Speaker #3: Our objective is straightforward: to deepen our strategic co-innovation partnerships, outgrow the market we serve, and create sustainable long-term value for our shareholders. Before I turn to the financial review, I'd like to announce that this is going to be Sheri's last earnings call as CFO of UCT.

Speaker #3: I'd like to take a moment to recognize and thank Sheri for her 17 years of dedicated service to UCT. Sheri has been a trusted, exceptional steward of our business.

James Xiao: I'd like to take a moment to recognize and thank Sheri for her 17 years of dedicated service to UCT. Sheri has been a trusted leader and an exceptional steward of our business, helping guide the company through the periods of significant growth and transformation while strengthening our financial foundation. On behalf of our board of directors and the entire UCT family, thank you, Sheri, for your many contributions, unwavering commitment to the company. We wish you all the best in your well-earned retirement. Over to you for the financial review. Thank you.

Speaker #3: Helping guide the company through periods of significant growth and transformation while strengthening our financial foundation. On behalf of our board of directors and the entire UCT family, thank you, Sheri, for your many contributions and your commitment to the company.

Speaker #3: We wish you all the best in your well-earned retirement. Over to you for the financial review. Thank you.

Speaker #2: Thanks, James, and good afternoon, everyone. Thanks for joining us in today's discussion. I will be referring to non-GAAP numbers only. As James mentioned, this will be my final earnings call with UCT.

Sheri Savage: Thanks, James. Good afternoon, everyone. Thanks for joining us. In today's discussion, I will be referring to non-GAAP numbers only. As James mentioned, this will be my final earnings call with UCT. It has been a privilege to be a part of UCT's growth and transformation over the past 17 years, and I want to sincerely thank our employees, customers, investors, and partners for your support. Before I begin, I'd like to welcome Michael Keough, our new Chief Financial Officer. Mike brings extensive financial, operational, and public company leadership experience, and I am confident he will be a tremendous asset to the team as they continue to advance the UCT 3.0 growth plan. For Q2, demand remained healthy across both products and services businesses. Those market dynamics supported another quarter of solid execution and financial performance.

Speaker #2: It has been a privilege to be a part of UCT's growth and transformation over the past 17 years, and I want to sincerely thank our employees, customers, investors, and partners for your support.

Speaker #2: Before I begin, I’d like to welcome Mike Keo, our new Chief Financial Officer. Mike brings extensive financial, operational, and public company leadership experience, and I am confident he will be a tremendous asset to the team as we continue to advance the UCT 3.0 growth plan.

Speaker #2: For the second quarter, demand remained healthy across both products and services businesses. Those market dynamics supported another quarter of solid execution and financial performance.

Speaker #2: For the second quarter, we saw record total revenue of $644.9 million, compared to $533.7 million in the prior quarter. Revenue from products was $572.7 million, compared to $465.7 million last quarter.

Sheri Savage: For Q2, we saw record total revenue of $644.9 million, compared to $533.7 million in the prior quarter. Revenue from products was $572.7 million, compared to $465.7 million last quarter. Services revenue was $72.2 million in Q2, compared to $68 million in Q1. We continue to invest in capacity to support our customers' long-term growth. We recently added 26,000 square feet of clean room space in Malaysia, with additional expansion planned in Singapore and Czech Republic soon. These investments position us to support an annualized revenue run rate of approximately $4 billion by mid-2027, while planning is underway for the next phase of the capacity expansion to support $5 billion run rate over time. As production increases, we expect to benefit from improved operating leverage and corresponding margin expansion. Total gross margin for Q2 was 16.7%, compared to 16.5% last quarter.

Speaker #2: Services revenue was $72.2 million in Q2, compared to $68 million in Q1. We continued to invest in capacity to support our customers' long-term growth.

Speaker #2: We recently added 26,000 square feet of clean room space in Malaysia, with additional expansion planned in Singapore and the Czech Republic soon. These investments position us to support an annualized revenue run rate of approximately $4 billion by mid-2027, while planning is underway for the next phase of capacity expansion to support a $5 billion run rate over time.

Speaker #2: As production increases, we expect to benefit from improved operating leverage and corresponding margin expansion. Total gross margin for the second quarter was 16.7%, compared to 16.5% last quarter.

Speaker #2: Product gross margin was 15.1%, compared to 14.6% in Q1, and services was 28.9%, compared to 30% last quarter. Gross margin improved primarily due to higher volumes driving factory efficiencies.

Sheri Savage: Products gross margin was 15.1%, compared to 14.6% in Q1, and services was 28.9%, compared to 30% last quarter. Gross margin improved primarily due to higher volumes driving factory efficiencies. Margins continue to be influenced by fluctuations in volume, mix, and manufacturing region, as well as material and transportation costs. There will be variances quarter to quarter. Operating expense for the quarter was $62.5 million, compared to $61.1 million in Q1. As a percentage of revenue, operating expenses were 9.7% versus 11.4% last quarter. Total operating margin for the quarter came in at 7%, compared to 5.1% last quarter. Margin from our products division was 6.5%, compared to 4.2%, and services margin was 11.2%, compared to 11.5% in the prior quarter. Q2 tax rate came in at 20%, consistent with our expectations.

Speaker #2: Margins continue to be influenced by fluctuations in volume, mix, and manufacturing region, as well as material and transportation costs. Therefore, there will be variances quarter to quarter.

Speaker #2: Operating expense for the quarter was $62.5 million, compared to $61.1 million in Q1. As a percentage of revenue, operating expenses were 9.7% versus 11.4% last quarter.

Speaker #2: Total operating margin for the quarter came in at 7%, compared to 5.1% last quarter. Margin from our products division was 6.5%, compared to 4.2%, and services margin was 11.2%, compared to 11.5% in the prior quarter.

Speaker #2: Second-quarter tax rate came in at 20%, consistent with our expectations. Our mix of earnings between higher- and lower-tax jurisdictions can cause our rate to fluctuate throughout the year.

Sheri Savage: Our mix of earnings between higher and lower tax jurisdictions can cause our rate to fluctuate throughout the year. For 2026, we expect our tax rate to stay in the low 20% range. Based on 46 million shares outstanding, earnings per share for the quarter were $0.70 on net income of $32.3 million, compared to $0.31 on net income of $14.5 million in the prior quarter. Turning to the balance sheet, cash and cash equivalents were $255.9 million, compared to $323.5 million at the end of last quarter. Operating cash flow was -$41.1 million, compared to -$33.3 million last quarter. The year-to-date cash outflow continues to reflect strategic investments in working capital, particularly inventory, to support anticipated demand and position the business for future growth.

Speaker #2: For 2026, we expect our tax rate to stay in the low 20% range. Based on 46 million shares outstanding, earnings per share for the quarter were $0.70 on net income of $32.3 million, compared to $0.31 on net income of $14.5 million in the prior quarter.

Speaker #3: Turning to the balance sheet, cash and cash equivalents were $255.9 million, compared to $323.5 million at the end of last quarter. Operating cash flow was negative $41.1 million, compared to negative $33.3 million last quarter.

Speaker #2: The year-to-date cash outflow continues to reflect strategic investments in working capital, particularly inventory, to support anticipated demand and position the business for future growth.

Speaker #2: Turning to the guidance for the third quarter, we project total revenue to be between $700 million and $750 million, and EPS in the range of $0.83 to $1.03.

Sheri Savage: Turning to the guidance for Q3, we project total revenue to be between $700 and $750 million, and EPS in the range of $0.83 to $1.30. With that, I'd like to turn the call over to the operator for questions.

Speaker #2: And with that, I'd like to turn the call over to the operator for questions.

Speaker #4: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by one on your touchtone phone.

Operator 2: 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 one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Timothy Arcuri from UBS. Your line is open.

Operator: 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 one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Timothy Arcuri from UBS. Your line is open.

Speaker #4: You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by two.

Speaker #4: If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Timothy Arcury from UBS.

Speaker #4: Your line is open.

Speaker #5: Thanks a lot. Just on the guidance, it was quite good, but it could have it was, you know, right where I thought it would be, but it could have been even better when you consider that your biggest customer-guided, it's systems up, it's implying it's systems are going to grow like 30% Q1Q in, you know, calendar Q3.

Timothy Arcuri: Thanks a lot. Just on the guidance, it was quite good. It was right where I thought it would be. It could have been even better when you consider that your biggest customer guided its systems up. It is implying its systems are going to grow 30% QoQ in calendar Q3. I realize your product revenue outgrew their systems in June. Is it really just a timing thing, or do they have some inventory, or maybe you are just being arguably a little bit conservative in your guidance?

Speaker #5: I realize your product revenue outgrew their systems in June, so was it really just a timing thing, or do they have some inventory, or maybe you're just being, you know, maybe arguably a little bit conservative in your guidance?

Speaker #6: Yeah, it's a little bit both, Tim. James, I think that definitely you realize that, you know, we have a timing gap with certain customers, where we need to really they need to integrate our subsystem into their systems and there's a timing lag.

James Xiao: Yeah, it is a little bit both, Tim. This is James. I think that definitely you realize that we have a timing gap with certain customers where they need to integrate our subsystem into their systems.

James Xiao: There is a timing lag. The revenue recognition time is different because of that. For some other customer, their quarter end is a little bit different from ours. That create a little bit of timing gap on the revenue growth. If you aggregate a two-quarter revenue growth, you will see that our revenue is on par with their growth or higher.

Speaker #6: So the revenue recognition time is different because of that. And for some other customer, they also their quarter end are a little bit different from ours, so that create a little bit timing gap on the revenue growth.

Speaker #6: But if you aggregate our two-quarter revenue growth, you will see that our revenue is on par with their growth, or higher.

Speaker #5: Thanks a lot, James. And then we've heard some examples—so all your customers are basically at full capacity there. I mean, they're basically booking into the back half of '27, if not even some of them, you know, out into '28 for some of the slots.

Timothy Arcuri: Thanks a lot, James. We have heard some examples. All your customers are so full on capacity. They are basically booking into the back half of 2027, if not even some of them out into 2028, some of the slots. Is there an opportunity for them to use you as more overflow? They come to you to maybe do some things that they had originally planned to do themselves, so that maybe that can gear your revenue to the upside, just given how full their internal manufacturing is? Thanks.

Speaker #5: So is there an opportunity for them to use you as more overflow? So they come to you to maybe do some things that they had originally planned to do themselves.

Speaker #5: So that maybe that can gear your, you know, revenue to the upside just, you know, given how full their internal manufacturing is. Thanks.

Speaker #6: Yeah, definitely we see that upside opportunity, especially when the customers are to some extent constrained by their internal capacity. You know, in this upturn, as you know, they intend to focus more on their final test and final integration capacity, and overflow their subsystem capacity to partners like UCT.

James Xiao: Definitely we see that upside opportunity, especially when the customer are, to some extent, constrained by their internal capacity. In this upturn, as you know, they intend to focus more on their final test and the final integration capacity, and overflow their subsystem capacity to partners like UCT. Definitely, historically, we see that outgrow opportunity when the customer gave a higher percentage of their subsystem build to UCT in an upturn like this. This is why we always see a outgrow percentage on the product side in upturn.

Speaker #6: So definitely historically we see that, you know, outgrowth opportunity when the customer gave a higher percentage of their subsystem build. To UCT in the upterm like this.

Speaker #6: So this is why we always see an outgrowth percentage on the product side in UCT.

Speaker #5: Got it, James. Thank you so much.

Timothy Arcuri: Got it, James. Thank you so much.

Speaker #6: Thank you, Tim.

James Xiao: Thank you, Tim.

Speaker #4: Your next question comes from the line of Charles Xie from Needham. Your line is open.

Operator 2: Your next question comes from the line of Charles Shi from Needham. Your line is open.

Operator: Your next question comes from the line of Charles Shi from Needham. Your line is open.

Speaker #2: Thanks for taking my question. Congrats on the nice results, and I have a question on the capacity plan. I think I heard you talk about maybe getting the full $1 billion runway ready by mid-2027, looking at a $5 to $5.5 billion run rate over time.

David Brown: Thanks for taking my question. Congrats on the nice results. I have a question on the capacity plan. I think I heard you talk about maybe get the $4 billion run rate ready by mid-2027, looking at a $5 billion run rate over time. On the $4 billion, what's the current judgment on the timing? Maybe you may have to do it a little bit earlier than mid-2027, or what's the range of possibilities, and what's the buyers? On the $5 billion, what do you have to see to pull the trigger to really start that expansion to the $5 billion run rate? Thank you.

Charles Shi: Thanks for taking my question. Congrats on the nice results. I have a question on the capacity plan. I think I heard you talk about maybe get the $4 billion run rate ready by mid-2027, looking at a $5 billion run rate over time. On the $4 billion, what's the current judgment on the timing? Maybe you may have to do it a little bit earlier than mid-2027, or what's the range of possibilities, and what's the buyers? On the $5 billion, what do you have to see to pull the trigger to really start that expansion to the $5 billion run rate? Thank you.

Speaker #2: But on a full billion, what's the current judgment on the timing? Maybe you may have to do it a little bit earlier than mid-2027, or what's the range of possibilities, and what's the bias?

Speaker #2: And on a $5 billion, what do you have to see to pull the trigger to really start that expansion to the $5 billion run rate?

Speaker #2: Thank you.

Speaker #6: Thank you, Charles. I think that we said we're taking the phased approach from $3 billion to $4 billion. And then from $4 billion to $5 billion, we'll execute on that plan.

James Xiao: Thank you, Charles. I think that we said we're taking the phased approach from $3 billion to $4 billion, then from $4 billion to $5 billion. We're execute on that plan. By end of the year, you will see a three and a half billion USD capacity ready, and that really match the run rate we see today. In H1 2027, we will hit that $4 billion run rate in capacity, and we're going full speed on that. As you see in my statement earlier, we're actually adding 26,000 square feet in Malaysia site, and we're doing similar things in our Singapore and Czech Republic sites. We will get that $4 billion in H1 2027.

Speaker #6: So by the end of the year, you will see a $3.5 billion capacity ready, and that really matches the run rate we see today.

Speaker #6: And then, in the first half of 2027, we will hit that $4 billion run rate in capacity. And we're going full speed on that.

Speaker #6: As you see in my statement earlier, we are actually adding sites and we're doing similar things at our Singapore and Czech Republic sites. So we will get that $4 billion in the first half of '27.

James Xiao: For the $5 billion run rate or to address that $260 billion WFE, we actually evaluating the new expansion plan in Southeast Asia, and we'll make that decision pretty quickly and start the execution. The timeline still, as we communicated before, in H1 2028 will reach beyond the $4 billion, and those capacity will add, you will see the run rate of $5 billion in H2 2028.

Speaker #6: For the $5 billion addressable, a $250 billion WFE, we are actually evaluating the new expansion plan in Southeast Asia, and we'll make that decision pretty quickly and start the execution. The timeline is still as we communicated before—in the first half of 2028, we'll reach beyond the $4 billion, and those capacities will be added. You will see the run rate of $5 billion in the second half of '28.

Speaker #2: Thanks, James. So that's pretty clear. Sheri, congrats again on the well-deserved retirement. Glad to have worked with you for quite a few years. Maybe, as Mike is also here, I want to get some thoughts.

David Brown: Thanks, James. That's pretty clear. Sheri, congrats again on the well-deserved retirement. Glad working with you for quite a few years. Maybe as Mike is also here, I want to get some thoughts, maybe early thoughts from Mike, how to think about margin model going forward. I know the team has laid out a goal of 20% gross margin, 10% operating margin at the $4 billion revenue run rate. Since the $4 billion is kind of in sight right now, any thoughts on long-term, if you will, aspirational margin targets going forward? Any early thoughts at the moment? I think we definitely appreciate that. Thank you.

Charles Shi: Thanks, James. That's pretty clear. Sheri, congrats again on the well-deserved retirement. Glad working with you for quite a few years. Maybe as Mike is also here, I want to get some thoughts, maybe early thoughts from Mike, how to think about margin model going forward. I know the team has laid out a goal of 20% gross margin, 10% operating margin at the $4 billion revenue run rate. Since the $4 billion is kind of in sight right now, any thoughts on long-term, if you will, aspirational margin targets going forward? Any early thoughts at the moment? I think we definitely appreciate that. Thank you.

Speaker #2: Maybe some early thoughts from Mike on how to think about the margin model going forward. I know the team has laid out a goal of 20% gross margin and 10% operating margin at the $4 billion revenue run rate, but since the $4 billion is kind of in sight right now, any thoughts on aspirational margin targets going forward? Any early thoughts at the moment?

Speaker #2: I think we definitely appreciate that. Thank you.

Speaker #7: Hi, Charles. Sheri, thank you for the nice comment. I'll be answering questions on this call at this point, but you'll get to talk to Mike later.

Sheri Savage: Hi, Charles. Sheri, thank you for the nice comment. I'll be answering calls on this call at this point, but you'll get to talk to Mike later. For the incremental margins, we do see them continuing to move up as we utilize more of our factories, obviously. We do see us moving towards that 17% range as we move through the rest of the year and hopefully moving beyond that. The $4 billion and 20% gross margin is still the goal that we are marching towards, especially during 2027. Beyond that, we'll put out a model at some point, but that's the goals that we're still marching to with the utilization of our factories and where we're at right now.

Speaker #7: For the incremental margins, we do see them continuing to move up as we utilize more of our factories, obviously. We do see us moving towards that 17% range as we move through the rest of the year, and hopefully moving beyond that.

Speaker #7: The $4 billion and 20% gross margin is still the goal that we are marching towards, especially during 2027. So beyond that, we'll put out a model at some point, but that's the goals that we're still marching to with the utilization of our factories and where we're at right now.

Speaker #2: Thank you. I appreciate it.

David Brown: Thank you. I appreciate it.

Charles Shi: Thank you. I appreciate it.

Speaker #4: Your next question comes from the line of Krish Sankar from TD Cowen. Your line is open.

Operator 2: Your next question comes from the line of Krish Sankar from TD Cowen. Your line is open.

Operator: Your next question comes from the line of Krish Sankar from TD Cowen. Your line is open.

Speaker #5: Hey guys, this is Eddie for Krish. A question on the customers beyond the biggest two customers—it seems that customer base has been growing year over year.

Edward Yang: Hey, guys. This is Eddie for Krish. A question on the customers beyond the biggest two customers. It seems that customer base has been growing year-over-year. Can you give us some color on that? What's the driver and think about it going forward? I have a follow-up.

Eddy Orabi: Hey, guys. This is Eddy for Krish. A question on the customers beyond the biggest two customers. It seems that customer base has been growing year-over-year. Can you give us some color on that? What's the driver and think about it going forward? I have a follow-up.

Speaker #5: Can you give us some color on that? What's the driver, and how should we think about it going forward? I have a follow-up.

Speaker #6: Yeah, Chris, and definitely, as you can see, if you look at our quarter-by-quarter customer distribution, you can see that the top two customers, as presented, where revenue actually reduced from the 64 down to the high 50s.

James Xiao: Yeah, Krish, definitely, as you can see that if you look at our quarter-by-quarter customer distribution, you can see that the top two customers as a percentage of our revenue actually reduced from the 64% down to the high 50%. I think that just shows that we're diversifying our customer mix so that it's less volatile, regardless of the segment move within the WFE. We're growing our business with our little customers. As they see we getting the momentum and more adoption in the leading-edge foundry logic and in the memory now, we'll see that we also grow our business in term of total revenue.

Speaker #6: So I think that that's just to show that we're diversifying our customer mix so that it's less volatile. Regardless of the segment move within the WFE, we're growing our business with our list of customers.

Speaker #6: And as the EUV getting the momentum and more adoption in the leading-edge foundry logic, and in the memory now, we see that we also grow our business in terms of total revenue and but because the 2026 and 2027, we still see the WFE actually has more depth and edge intensity so we do not see that the percentage of the non-depth th and edge will grow significantly.

James Xiao: Because the 2026 and 2027, we still see the WFE actually has more dep and etch intensity, we do not see that the percentage of the non-dep and etch will grow significantly, will definitely grow in that segment as well.

Speaker #6: But we'll definitely grow in that segment as well.

Speaker #5: Got it. Got it. And just a clarification about the previous question. You mentioned when you get to full utilization, your gross margins would be 20%.

Edward Yang: Got it. Just a clarification about the previous question. You mentioned when you get to full utilization, your gross margins would be 20%. At full utilization, would you remind us what level of revenue run rate that would be, and would it be 20%? I think the September guide implies around 19% gross margin. Thank you.

Eddy Orabi: Got it. Just a clarification about the previous question. You mentioned when you get to full utilization, your gross margins would be 20%. At full utilization, would you remind us what level of revenue run rate that would be, and would it be 20%? I think the September guide implies around 19% gross margin. Thank you.

Speaker #5: And at full utilization, would you remind us what level of revenue run rate that would be? And would it be 20%? Because I think the September guide implies around 19% gross margin.

Speaker #5: Thank you.

Speaker #7: Yeah. I mean, again, as we've mentioned many times, it depends on multiple things, whether that be mix and revenue, where things are shipped from, jurisdiction, et cetera.

Sheri Savage: Yeah. Again, as we've mentioned many times, it depends on multiple things, whether that be mix and revenue and where things are shipped from, jurisdiction, et cetera. Our goal is to be at $4 billion and 20% gross margin. The question is, obviously, there's many factors that go into that. It just depends on where we're at at that moment. We anticipate that we will be at a run rate of $4 billion at some point during 2027.

Speaker #7: So, our goal is to be at $4 billion and 20% gross margin. The question is, obviously, there are many factors that go into that, so it just depends on where we’re at at that moment.

Speaker #7: But we anticipate that we will be at a run rate of $4 billion at some point during 2027.

Speaker #5: Thank you very much.

Edward Yang: Thank you very much.

Eddy Orabi: Thank you very much.

Speaker #4: Your next question comes from the line of Adyang from Oppenheimer. Your line is open.

Operator 2: Your next question comes from the line of Ed Yang from Oppenheimer. Your line is open.

Operator: Your next question comes from the line of Ed Yang from Oppenheimer. Your line is open.

Speaker #8: Hi, James. Thanks for the time. One of your competitors reported some issues with component shortages in the second quarter. Just curious, did you run into any similar problems and were there any delivery push-outs in the quarter?

Edward Yang: Hi, James. Thanks for the time. One of your competitors reported some issues with component shortages in Q2. Just curious, did you run into any similar problems, and were there any delivery pushouts in the quarter?

Ed Yang: Hi, James. Thanks for the time. One of your competitors reported some issues with component shortages in Q2. Just curious, did you run into any similar problems, and were there any delivery pushouts in the quarter?

Speaker #6: Yeah, so the answer is no. I think we talked about that a couple of earnings ago, that we really initiated the ramp readiness campaign internally way ahead.

James Xiao: Yeah. Ed, answer is no. I think we talked about that a couple earnings ago, that we really initiate the ramp readiness campaign internally way ahead. With that, we were able to secure most of the critical components and really mitigate through at this point. But what I see is also, if you look forward, the industry is implying a double-digit growth quarter by quarter that will constantly put the pressure on the entire supply chains. You will see excursions in WFE supply chain, and we just need to actively and accurately manage that.

Speaker #6: So with that, we were able to secure most of the critical components and really kind of made it through at this point. But what I see is, also if you look forward, the industry is implying a double-digit growth quarter by quarter.

Speaker #6: That will constantly put pressure on the entire supply chain, and you will see excursions in the WFE supply chain. We just need to actively and proactively manage that.

Speaker #8: Okay. And your comments around WFE—it sounds like, again, by mid-2027, you said you expect to see a $200 billion run rate WFE, and for UCT, a $4 billion revenue run rate.

Edward Yang: Okay. Your comments around WFE, it sounds like, again, by mid-2027, you said you expect to see a $200 billion run rate WFE, and for UCT, a $4 billion revenue run rate. It sounded like you also hinted that 2028, you expect to see good growth there, because you implied that you're going to add capacity beyond that $4 billion run rate for H2 of 2028. Just wondering what informs that outlook. Is it the order book? The outlook? Would love some color there.

Ed Yang: Okay. Your comments around WFE, it sounds like, again, by mid-2027, you said you expect to see a $200 billion run rate WFE, and for UCT, a $4 billion revenue run rate. It sounded like you also hinted that 2028, you expect to see good growth there, because you implied that you're going to add capacity beyond that $4 billion run rate for H2 of 2028. Just wondering what informs that outlook. Is it the order book? The outlook? Would love some color there.

Speaker #8: And it sounded like you also hinted at 2028—you expect to see good growth there—because you implied that you're going to add capacity beyond that $4 billion run rate in the first half of '28.

Speaker #8: Just wondering, what informs that outlook? Is it just firm—is it the order book, the outlook? We'd love some color there.

Speaker #6: Yeah, I think that we definitely see a good chance for the whole industry to exceed $200 billion WFE sometime in '27, right? So, I think that you see the range between $190 billion up to $220 billion.

James Xiao: Yeah, I think that we definitely see a good chance for the whole industry to exceed $200 billion WFE sometime in 2027, right? I think that you see the range between $190 billion up to $220 billion. We just prepare ourselves on the bull case, right? Because I do believe that sufficient 50 stock additional capacity will become a competitive advantage in this kind of upcycle.

Speaker #6: And so, we just prepare ourselves for the bull case, right? Because I do believe that sufficient safety stock and additional capacity will become a competitive advantage in this kind of upcycle.

Speaker #8: Perfect. Thank you.

Edward Yang: Perfect. Thank you.

Ed Yang: Perfect. Thank you.

Speaker #4: Your next question comes from the line of Christian Schwab from Craig-Hallum. Your line is open.

Operator 2: Your next question comes from the line of Christian Schwab from Craig-Hallum. Your line is open.

Operator: Your next question comes from the line of Christian Schwab from Craig-Hallum. Your line is open.

Christian Schwab: Great. Thanks for taking my questions. Congratulations, Sheri, on a well-deserved retirement. It has been a pleasure working with you for many years. My only question has to do with, as wafer starts accelerate from the capacity that is put on, is it safe to assume that services will grow at the same pace as products or even potentially higher as we exit 2027?

Speaker #5: Great, thanks for taking my questions. Congratulations, Sheri, on a well-deserved retirement. It has been a pleasure working with you for many, many, many years.

Speaker #5: My only question has to do with, as wafer starts accelerate from the capacity that's put on, is it safe to assume that services will grow at the same pace as products, or even potentially higher, as we exit 2027?

James Xiao: Christian, I definitely see that the service will grow, as we communicated before, in the double digits. As you know, the OEMs always have their extended service. There is a timing lag, right? I think that we still see the double-digit growth in 2026 and 2027, but the acceleration will be after we see the ramp of the factories in US, the improvement of the utilization of one of our major customers in US, and also really the leading-edge ramp as they planned in factories in Korea and Taiwan.

Speaker #6: Christian, I definitely see that the service will grow, as we communicated before, in the double digits. But as you know, the OEMs always have their extended service.

Speaker #6: So there's a timing lag, right? So I think that we still see the double digit growth in the '26 and '27. But the acceleration will be after we see the ramp of the once the factories in US, the improvement of the utilization of one of our major customers in US and also the really the kind of the leading age ramp go as they planned in a factories in Korea and Taiwan.

Speaker #5: Okay, that's fair. Great. No other questions. Thank you, guys. Break quarter.

Christian Schwab: Okay. That is fair. Great. No other questions. Thank you, guys. Great quarter.

James Xiao: Thank you.

Speaker #7: Thank you.

Michael Keough: Thank you.

Sheri Savage: Thank you.

Speaker #4: There are no further questions at this time. I will now turn the call over to James Schwab for closing remarks.

Operator 2: There are no further questions at this time. I will now turn the call over to James Xiao for closing remarks.

Operator: There are no further questions at this time. I will now turn the call over to James Xiao for closing remarks.

Speaker #6: Thank you, operator. We appreciate you joining us today. And we look forward to talk some of you at the callback and update you all after Q3.

James Xiao: Thank you, operator. We appreciate you joining us today, and we look forward to talk to some of you at the callback and update you all after Q3.

Operator 2: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

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