Ultra Clean Reports Third Quarter 2018 Financial Results

10 December 2018

HAYWARD, Calif., Nov. 6, 2018 /PRNewswire/ -- Ultra Clean Holdings, Inc. (Nasdaq: UCTT), a leading developer and supplier of critical subsystems, ultra-high purity cleaning and analytical services for the semiconductor and display capital equipment industries, today reported its financial results for the third quarter ended September 28, 2018.

(PRNewsfoto/Ultra Clean Holdings, Inc.)

"The addition of a new, recurring revenue stream from Quantum late in the third quarter helped to offset the pause in the semiconductor capital equipment investment cycle," said Jim Scholhamer, CEO. "By expanding our core products and systems business to include a services component, we can play a larger, more vital role creating and capturing value for our existing and new top-tier OEM and IDM customers. We remain very positive on the industry's long-term drivers and will continue to execute on our growth strategy, extending our position as a leading supplier to the semiconductor market."

GAAP Financial Results

The financial information presented for the third quarter of 2018 includes five weeks of operations of Quantum Global Technologies, which UCT acquired on August 27, 2018.

Total revenue for the third quarter was $234.1 million, a decrease of 19.3% compared to the second quarter and a decrease of 3.5% compared to the same period a year ago.

Gross margin was 15.0% compared to 15.9% last quarter and 17.6% a year ago. Operating margin was 0.4% compared to 7.8% last quarter and 9.6% for the same period last year.

Net loss for the third quarter was $6.0 million or $0.15 per basic and diluted share compared to net income of $19.0 million or $0.49 and $0.48 per basic and diluted share in the previous quarter, and net income of $19.7 million or $0.59 and $0.57 per basic and diluted share last year.

Cash and cash equivalents at the end of the third quarter were $160.3 million, an increase of $19.2 million compared to the second quarter.

Non-GAAP Financial Results

Non-GAAP net income was $11.9 million, or $0.30 per diluted share. This compares to non-GAAP net income of $21.5 million or $0.55 per diluted share in the previous quarter and non-GAAP net income of $21.3 million or $0.62 for the prior year.

Non-GAAP operating margin was 6.4% compared to 8.7% in the previous quarter and 10.1% in the same period a year ago.

The Company has provided a reconciliation of GAAP to non-GAAP financial measures in the financial statement tables included in this press release.

Fourth Quarter 2018 Outlook

The Company expects revenue to be between $240 million to $260 million and GAAP diluted net income per share to be in the range of $0.20 to $0.30. The Company expects non-GAAP net income per diluted share to be in the range of $0.22 to $0.32.

Conference Call

UCT will conduct a conference call today, Tuesday, November 6, 2018, beginning at 1:45 p.m. PT.

The call-in number is (844) 826-3034 (domestic) and (412) 317-5179 (international). A replay of the conference will be available for seven days following the call at (877) 344-7529 (domestic) and (412) 317-0088 (international). The confirmation number for live broadcast and replay is 10124276. 

About Ultra Clean Holdings, Inc.

Ultra Clean Holdings, Inc. is a leading developer and supplier of critical subsystems, ultra-high purity cleaning and analytical services primarily for the semiconductor and display related industries. Ultra Clean offers its customers an integrated outsourced solution for major subassemblies, improved design-to-delivery cycle times, design for manufacturability, prototyping and component manufacturing. Ultra Clean is headquartered in Hayward, California. Additional information is available at www.uct.com.

Use of Non-GAAP Measures

Management uses non-GAAP net income and net income per diluted share to evaluate the Company's operating and financial results. We believe the presentation of non-GAAP results is useful to investors for analyzing our core business and business trends and comparing performance to prior periods, along with enhancing investors' ability to view the Company's results from management's perspective. The presentation of this additional information should not be considered a substitute for results prepared in accordance with GAAP. Tables presenting reconciliations of non-GAAP results to U.S. GAAP results are included at the end of this press release. A reconciliation of our guidance for non-GAAP net income per diluted share for the fourth quarter of 2018 is not available due to fluctuations in the geographic mix of our earnings from quarter to quarter, which impacts our tax rate and cannot be reasonably predicted or determined. As a result, such reconciliation is not available without unreasonable efforts and we are unable to determine the probable significance of the unavailable information.

Safe Harbor Statement

The foregoing information contains, or may be deemed to contain, "forward-looking statements" (as defined in the US Private Securities Litigation Reform Act of 1995) which reflect our current views with respect to future events and financial performance. We use words such as "anticipates,", "projection", "outlook", "forecast", "believes," "plan," "expect," "future,"' "intends," "may," "will," "estimates,", "see", "predicts," and similar expressions to identify these forward-looking statements. Forward looking statements included in this press release include our expectations about the semiconductor capital equipment market and our fourth quarter 2018 outlook. All forward-looking statements address matters that involve risks and uncertainties. Accordingly, the Company's actual results may differ materially from the results predicted or implied by these forward-looking statements. These risks, uncertainties and other factors also include, among others, those identified in "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations'' and elsewhere in our annual report on Form 10-K for the year ended December 29, 2017 as filed with the Securities and Exchange Commission and subsequently filed quarterly reports on Form 10-Q. Ultra Clean Holdings, Inc. undertakes no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise unless required by law.

Contact:

Rhonda Bennetto

Vice President Investor Relations

250-307-9030

 

ULTRA CLEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except per share data)



























Three months ended



Nine months ended



September 28, 



September 29, 



September 28, 



September 29, 

2018



2017

2018



2017

























Sales

$

234,079



$

242,610



$

839,134



$

675,465

Cost of goods sold



199,084





199,914





709,270





551,903

Gross profit



34,995





42,696





129,864





123,562

























Operating expenses:























  Research and development



3,284





2,722





9,228





8,402

  Sales and marketing



3,839





3,662





11,274





10,064

  General and administrative



26,950





13,050





58,868





37,656

    Total operating expenses



34,073





19,434





79,370





56,122

Income from operations



922





23,262





50,494





67,440

  Interest and other income (expense), net



(2,766)





(19)





(3,249)





(2,077)

Income (loss) before provision for income taxes



(1,844)





23,243





47,245





65,363

  Income tax provision



4,596





3,527





9,984





11,127

Net income (loss)



(6,440)





19,716





37,261





54,236

  Net loss attributable to non-controlling interest



(443)





-





(443)





-

Net income (loss) attributable to Ultra Clean Holdings, Inc. 

$

(5,997)



$

19,716



$

37,704



$

54,236

























Net income (loss) per share attributable to Ultra Clean Holdings, Inc. common stockholders:























  Basic

$

(0.15)



$

0.59



$

0.99



$

1.63

  Diluted

$

(0.15)



$

0.57



$

0.97



$

1.59

Shares used in computing net income (loss) per share:























  Basic



38,930





33,540





38,152





33,342

  Diluted



38,930





34,360





38,745





34,216

 

ULTRA CLEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; in thousands)



















September 28,



December 29,

2018

2017

ASSETS













Current assets:













  Cash and cash equivalents



$

160,340



$

68,306

  Accounts receivable, net of allowance





95,056





90,213

  Inventory





198,578





236,840

  Other current assets





30,873





12,089

    Total current assets





484,847





407,448















Equipment and leasehold improvements, net





133,746





32,246

Goodwill





151,869





85,248

Purchased intangibles, net





203,180





31,587

Deferred tax assets, net





4,918





4,951

Other non-current assets





8,072





1,932

Total assets



$

986,632



$

563,412















LIABILITIES AND STOCKHOLDERS' EQUITY













Current liabilities:













  Bank borrowings



$

42,818



$

12,381

  Accounts payable





95,178





173,521

  Other current liabilities





37,627





21,445

    Total current liabilities





175,623





207,347















Bank borrowings, net of current portion





330,984





39,893

Deferred tax liability





9,868





9,981

Other long-term liabilities





23,409





5,886

    Total liabilities





539,884





263,107















Stockholders' equity:













  Common stock





283,995





185,336

  Retained earnings





150,826





113,122

  Accumulated other comprehensive income





(43)





1,847

  Ultra Clean Holdings, Inc. stockholders' equity





434,778





300,305

  Noncontrolling interest





11,970





-

    Total stockholders' equity





446,748





300,305

Total liabilities and stockholders' equity



$

986,632



$

563,412















 

ULTRA CLEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in thousands)











Nine Months Ended



September 28,



September 29,



2018



2017

Cash flows from operating activities:







Net income including noncontrolling interests

$        37,261



$        54,236

Adjustments to reconcile net income to net cash provided by operating activities (excluding assets acquired and liabilities assumed):







Depreciation and amortization

10,730



7,703

Stock-based compensation

7,133



5,059

Change in the fair value of financial instruments

(499)



(278)

Others

1,352



72

Changes in assets and liabilities:







Accounts receivable

13,730



(32,387)

Inventories

37,816



(60,484)

Prepaid expenses and other

(6,292)



(4,386)

Deferred income taxes

68



(224)

Other non-current assets

(297)



(486)

Accounts payable

(86,699)



57,695

Accrued compensation and related benefits

5,332



4,514

Income taxes payable

(3,969)



4,614

Other liabilities

(335)



1,978

Net cash provided by operating activities

15,331



37,626

Cash flows from investing activities:







Purchases of equipment and leasehold improvements

(15,526)



(12,534)

Acquisition of Quantum, net of cash acquired

(290,462)



Net cash used for investing activities

(305,988)



(12,534)

Cash flows from financing activities:







Proceeds from bank borrowings

382,184



8,172

Proceeds from issuance of common stock

94,471



1,689

Principal payments on bank borrowings

(78,608)



(19,228)

Debt issuance costs paid

(12,118)



Employees' taxes paid upon vesting of restricted stock units

(2,945)



(2,369)

Net cash provided by (used for) financing activities

382,984



(11,736)

Effect of exchange rate changes on cash and cash equivalents

(293)



118

Net increase in cash and cash equivalents

$        92,034



$        13,474

Cash and cash equivalents at beginning of period

68,306



52,465

Cash and cash equivalents at end of period

$      160,340



$        65,939

 

ULTRA CLEAN HOLDINGS, INC.

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS



















Three Months Ended





September 28,



September 29,



June 29,





2018



2017



2018

Reconciliation of GAAP Net Income (loss) to Non-GAAP Net Income (in thousands)













Reported net income (loss) attributable to Ultra Clean Holdings, Inc. on a GAAP basis

$          (5,997)



$        19,716



$      18,960

Amortization of intangible assets (1)



2,411



1,231



1,098

Reduction in force (2)



1,319



-



-

Product transition fees (3)



657



-



-

Executive transition costs (4)



246



-



1,400

Disposal of business unit (5)



1,082



-



-

Bank transaction costs (6)



99



-



-

Acquisition costs (7)



9,391



-



-

Income tax effect of non-GAAP adjustments (8)



(2,220)



(159)



(296)

Income tax effect of valuation allowance (9)



4,865



524



303

Non-GAAP net income attributable to Ultra Clean Holdings, Inc.



$          11,853



$        21,312



$      21,465















Reconciliation of GAAP Income from operations to Non-GAAP Income from operations (in thousands)









Reported income from operations on a GAAP basis



$               922



$        23,262



$      22,664

Amortization of intangible assets (1)



2,411



1,231



1,098

Reduction in force (2)



1,319



-



-

Product transition fees (3)



657



-



-

Executive transition costs (4)



246



-



1,400

Acquisition costs (7)



9,391



-



-

Non-GAAP income from operations



$          14,946



$        24,493



$      25,162















Reconciliation of GAAP Operating margin to Non-GAAP Operating margin













Reported operating margin on a GAAP basis



0.4%



9.6%



7.8%

Amortization of intangible assets (1)



1.0%



0.5%



0.4%

Reduction in force (2)



0.6%



0.0%



0.0%

Product transition fees (3)



0.3%



0.0%



0.0%

Executive transition costs (4)



0.1%



0.0%



0.0%

Acquisition costs (7)



4.0%



0.0%



0.0%

Non-GAAP operating margin



6.4%



10.1%



8.7%















Reconciliation of GAAP Gross profit to Non-GAAP Gross profit (in thousands)













Reported gross profit on a GAAP basis



$          34,995



$        42,696



$      46,065

Reduction in force (2)



1,197



-



-

Product transition fees (3)



657



-



-

Non-GAAP gross profit



$          36,849



$        42,696



$      46,065















Reconciliation of GAAP Gross margin to Non-GAAP Gross margin













Reported gross margin on a GAAP basis



15.0%



17.6%



15.9%

Reduction in force (2)



0.4%



-



0.0%

Product transition fees (3)



0.3%



-



0.0%

Non-GAAP gross margin



15.7%



17.6%



15.9%















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



Reported interest and other income (expense) on a GAAP basis



$          (2,766)



$             (19)



$         (809)

Disposal of business unit (5)



1,082



-



-

Bank transaction costs (6)



99



-



-

Non-GAAP interest and other income (expense)



$          (1,585)



$             (19)



$         (809)















1    Amortization of intangible assets related to the Company's acquisitions of AIT, Thermal, FDS and QGT

2    Represents severence costs related to the company's reduction in force during the quarter

3    One-time product transition payment  

4    Represents final termination benefits paid to a former executive of the Company

5    Represents the loss on disposal of the Companuy's 3D printing operations in Singapore

6    Represents the writeoff of debt issuance costs, bank fees related to the payoff of remaining debt with East West Bank.

7    Represents costs related to the acquisition of QGT

8    Tax effect of items (1) through (7) above based on the non-gaap tax rate shown below

9    The Company's GAAP tax expense is generally higher than the Company's non-GAAP tax expense, primarily due to losses in the U.S. with full federal and state valuation allowances. The Company's non-GAAP tax rate and resulting non-GAAP tax expense considers the tax implications as if there was no federal or state valuation allowance position in effect. 



















Three Months Ended





September 28,



September 29,



June 29,





2018



2017



2018

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









Reported net income (loss) on a GAAP basis



$            (0.15)



$            0.57



$          0.48

Amortization of intangible assets



0.06



0.04



0.03

Reduction in force



0.03



-



-

Product transition fees



0.02



-



0.00

Executive transition costs



0.01



-



0.04

Disposal of business unit 



0.03



-



-

Bank transaction costs



0.00



-



-

Acquisition costs



0.24



-



-

Income tax effect of non-GAAP adjustments



(0.06)



(0.01)



(0.01)

Income tax effect of valuation allowance



0.12



0.02



0.01

Non-GAAP net income



$              0.30



$            0.62



$          0.55

Weighted average number of diluted shares (thousands)

38,930



34,360



39,297





























 

ULTRA CLEAN HOLDINGS, INC.

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP EFFECTIVE INCOME TAX RATE





Three Months Ended





September 28,



September 29,



June 29,





2018



2017



2018

(in thousands, except percentages)













Provision for income taxes on a GAAP basis



$            4,596



$          3,527



$        2,895

Income tax effect of non-GAAP adjustments (1)



2,220



159



296

Income tax effect of valuation allowance (2)



(4,865)



(524)



(303)

Non-GAAP provision for income taxes



$            1,951



$          3,162



$        2,888















Income (loss) before income taxes on a GAAP basis



$          (1,844)



$        23,243



$      21,855

Amortization of intangible assets



2,411



1,231



1,098

Reduction in force



1,319



-



-

Product transition fees



657



-



-

Executive transition costs



246



-



1,400

Disposal of business unit



1,082



-



-

Bank transaction costs



99



-



-

Acquisition costs



9,391



-



-

Non-GAAP income before income taxes



$          13,361



$        24,474



$      24,353

Effective income tax rate on a GAAP basis



-249.2%



15.2%



13.2%

Non-GAAP effective income tax rate



14.6%



12.9%



11.9%



1   Tax effect of items (1) through (4) above based on the non-gaap tax rate

2   The Company's GAAP tax expense is generally higher than the Company's non-GAAP tax expense, primarily due to losses in the U.S. with full federal and state valuation allowances. The Company's non-GAAP tax rate and resulting non-GAAP tax expense considers the tax implications as if there was no federal or state valuation allowance position in effect. 

 

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SOURCE Ultra Clean Holdings, Inc.