Ultra Clean Reports First Quarter 2023 Financial Results

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Apr 26, 2023, 16:05 ET

HAYWARD, Calif., April 26, 2023 /PRNewswire/ -- Ultra Clean Holdings, Inc. (Nasdaq: UCTT), today reported its financial results for the first quarter ended March 31, 2023.

"Top line results came in largely as expected for the first quarter, however, several of the cost reduction initiatives we have implemented will take time to flow through to the bottom line," said Jim Scholhamer, CEO. "Against a backdrop of market uncertainty and limited visibility, we remain focused on execution while strengthening engagement with our customers on their long-term strategic projects to ensure greater success when the industry once again expands."

First Quarter 2023 GAAP Financial Results

Total revenue was $433.3 million. Products contributed $368.6 million and Services added $64.7 million. Total gross margin was 16.8%, operating margin was 2.9%, and net loss was $(3.4) million or $(0.08) per diluted share. This compares to total revenue of $566.4 million, gross margin of 19.2%, operating margin of 7.7%, and net income of $27.8 million or $0.61 per diluted share, in the prior quarter.

First Quarter 2023 Non-GAAP Financial Results

On a non-GAAP basis, gross margin was 17.3%, operating margin was 5.1%, and net income was $7.6 million or $0.17 per diluted share. This compares to gross margin of 19.5%, operating margin of 10.0%, and net income of $42.6 million or $0.93 per diluted share in the prior quarter.

Second Quarter 2023 Outlook

The Company expects revenue in the range of $410.0 million to $460.0 million. The Company expects GAAP diluted net income (loss) per share to be between $(0.08) and $0.10 and non-GAAP diluted net income per share to be between $0.15 and $0.35.

Conference Call

The conference call and webcast will take place on Wednesday, April 26, 2023 at 1:45 p.m. PT and can be accessed by dialing 1-844-826-3034 or 1-412-317-5179. No passcode is required. A replay of the call will be available by dialing 1-877-344-7529 or 1-412-317-0088 and entering the confirmation code 6579880. The Webcast will be available on the Investor Relations section of the Company's website at http://uct.com/investors/events/.

About Ultra Clean Holdings, Inc.

Ultra Clean Holdings, Inc. is a leading developer and supplier of critical subsystems, components and parts, and ultra-high purity cleaning and analytical services primarily for the semiconductor industry. Under its Products division, UCT offers its customers an integrated outsourced solution for major subassemblies, improved design-to-delivery cycle times, design for manufacturability, prototyping, and high-precision manufacturing. Under its Services Division, UCT offers its customers tool chamber parts cleaning and coating, as well as micro-contamination analytical services. Ultra Clean is headquartered in Hayward, California. Additional information is available at www.uct.com.

Use of Non-GAAP Measures

In addition to providing results that are determined in accordance with Generally Accepted Accounting Principles in the United States of America ("GAAP"), management uses non-GAAP gross margin, non-GAAP operating margin and non-GAAP net income 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 from GAAP results to non-GAAP results are included at the end of this press release.

The Company defines non-GAAP net income as net income (loss) before amortization of intangible assets, stock-based compensation, restructuring charges, acquisition activity costs, legal related costs and the tax effects of the foregoing adjustments.

A reconciliation of our guidance for non-GAAP net income per diluted share for the subsequent quarter 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," "should" 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 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 30, 2022, as filed with the Securities and Exchange Commission. 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
SVP Investor Relations
[email protected]

ULTRA CLEAN HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited; in millions, except per share data)

	Three Months Ended
	March 31,		April 1,
	2023		2022

Revenues:
Product	$	368.6	$	486.8
Services		64.7		77.3
Total revenues		433.3		564.1
Cost of revenues:
Product		315.1		399.5
Services		45.2		50.9
Total cost of revenues		360.3		450.4
Gross profit		73.0		113.7
Operating expenses:
Research and development		7.1		6.8
Sales and marketing		13.1		13.8
General and administrative		40.4		47.4
Total operating expenses		60.6		68.0
Income from operations		12.4		45.7
Interest income		0.5		—
Interest expense		(11.8)		(6.4)
Other income (expense), net		2.8		—
Income before provision for income taxes		3.9		39.3
Provision for income taxes		3.5		8.5
Net income		0.4		30.8
Less: Net income attributable to noncontrolling interests		3.8		2.9
Net income (loss) attributable to UCT	$	(3.4)	$	27.9

Net income (loss) per share attributable to UCT common stockholders:
Basic	$	(0.08)	$	0.62
Diluted	$	(0.08)	$	0.61
Shares used in computing net income (loss) per share:
Basic		44.8		44.9
Diluted		44.8		45.6

ULTRA CLEAN HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited; in millions)

	March 31,		December 30,
	2023		2022
ASSETS
Current assets:
Cash and cash equivalents	$	322.1	$	358.8
Accounts receivable, net of allowance		190.3		253.7
Inventories		433.0		443.9
Prepaid expenses and other current assets		35.8		42.4
Total current assets		981.2		1,098.8

Property, plant and equipment, net		289.9		279.6
Goodwill		248.8		248.8
Intangible assets, net		182.0		187.9
Deferred tax assets, net		36.6		36.0
Operating lease right-of-use assets		114.8		99.0
Other non-current assets		12.6		10.8
Total assets	$	1,865.9	$	1,960.9

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings	$	22.7	$	20.8
Accounts payable		196.0		253.5
Accrued compensation and related benefits		37.8		52.5
Operating lease liabilities		17.4		17.1
Other current liabilities		39.8		45.3
Total current liabilities		313.7		389.2

Bank borrowings, net of current portion		470.0		493.0
Deferred tax liabilities		52.3		52.2
Operating lease liabilities		95.6		80.3
Other liabilities		9.3		9.2
Total liabilities		940.9		1,023.9

Equity:
UCT stockholders' equity:
Common stock		504.8		515.5
Retained earnings		374.4		377.8
Accumulated other comprehensive loss		(8.5)		(5.4)
Total UCT stockholders' equity		870.7		887.9
Non-controlling interest		54.3		49.1
Total equity		925.0		937.0
Total liabilities and equity	$	1,865.9	$	1,960.9

ULTRA CLEAN HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited; in millions)

	Three Months Ended
	March 31,		April 1,
	2023		2022
Cash flows from operating activities:
Net income	$	0.4	$	30.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		15.7		18.9
Stock-based compensation		3.7		5.6
Change in the fair value of financial instruments		0.2		0.3
Deferred income taxes		(0.6)		1.4
Others		—		0.1
Changes in assets and liabilities:
Accounts receivable		63.4		(29.1)
Inventories		10.9		(61.1)
Prepaid expenses and other current assets		6.3		4.6
Other non-current assets		(1.7)		—
Accounts payable		(50.5)		(35.9)
Accrued compensation and related benefits		(14.7)		(6.0)
Income taxes payable		(1.6)		—
Operating lease assets and liabilities		(0.3)		(0.5)
Other liabilities		(3.2)		3.5
Net cash provided by (used in) operating activities		28.0		(67.4)
Cash flows from investing activities:
Purchases of property, plant and equipment		(27.3)		(28.4)
Net cash used in investing activities		(27.3)		(28.4)
Cash flows from financing activities:
Payments on bank borrowings		(22.0)		(2.6)
Repurchase of shares		(14.2)		—
Net cash used in financing activities		(36.2)		(2.6)
Effect of exchange rate changes on cash and cash equivalents		(1.2)		(1.1)
Net decrease in cash and cash equivalents		(36.7)		(99.5)
Cash and cash equivalents at beginning of period		358.8		466.5
Cash and cash equivalents at end of period	$	322.1	$	367.0

ULTRA CLEAN HOLDINGS, INC. REPORTABLE SEGMENTS GAAP TO NON-GAAP RECONCILIATION (Unaudited; dollars in millions)

		GAAP										Non-GAAP
		Three Months Ended										Three Months Ended
	March 31, 2023										March 31, 2023
	Products				Services			Consolidated			Products				Services			Consolidated
Revenues	$		368.6		$	64.7		$	433.3		$		368.6		$	64.7		$	433.3
Gross profit	$		53.5		$	19.5		$	73.0		$		54.3		$	20.5		$	74.8
Gross margin			14.5	%		30.1	%		16.8	%			14.7	%		31.7	%		17.3	%
Income from operations	$		8.7		$	3.7		$	12.4		$		15.1		$	7.0		$	22.1
Operating margin			2.4	%		5.7	%		2.9	%			4.1	%		10.8	%		5.1	%

											Three Months Ended
											March 31, 2023
											Products				Services			Consolidated
Reconciliation of GAAP Gross profit to Non-GAAP Gross profit (in millions)
Reported gross profit on a GAAP basis											$		53.5		$	19.5		$	73.0
Amortization of intangible assets (1)													0.5			1.0			1.5
Stock-based compensation expense (2)													0.3			—			0.3
Non-GAAP gross profit											$		54.3		$	20.5		$	74.8

Reconciliation of GAAP Gross margin to Non-GAAP Gross margin
Reported gross margin on a GAAP basis													14.5	%		30.1	%		16.8	%
Amortization of intangible assets (1)													0.1	%		1.6	%		0.4	%
Stock-based compensation expense (2)													0.1	%		0.0	%		0.1	%
Non-GAAP gross margin													14.7	%		31.7	%		17.3	%

Reconciliation of GAAP Income (loss) from operations to Non-GAAP Income from operations (in millions)
Reported income from operations on a GAAP basis											$		8.7		$	3.7		$	12.4
Amortization of intangible assets (1)													2.9			2.9			5.8
Stock-based compensation expense (2)													3.3			0.4			3.7
Restructuring charges (3)													0.2			—			0.2
Non-GAAP income from operations											$		15.1		$	7.0		$	22.1

Reconciliation of GAAP Operating margin to Non-GAAP Operating margin
Reported operating margin on a GAAP basis													2.4	%		5.7	%		2.9	%
Amortization of intangible assets (1)													0.8	%		4.5	%		1.3	%
Stock-based compensation expense (2)													0.9	%		0.6	%		0.9	%
Restructuring charges (3)													0.0	%		0.0	%		0.0	%
Non-GAAP operating margin													4.1	%		10.8	%		5.1	%

1 Amortization of intangible assets related to the Company's business acquisitions
2 Represents compensation expense for stock granted to employees and directors
3 Represents severance, retention and costs related to facility closures

ULTRA CLEAN HOLDINGS, INC. UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

	Three Months Ended
	March 31,			April 1,			December 30,
	2023			2022			2022
Reconciliation of GAAP Net Income to Non-GAAP Net Income (in millions)
Reported net income (loss) attributable to UCT on a GAAP basis	$	(3.4)		$	27.9		$	27.8
Amortization of intangible assets (1)		5.8			8.1			7.0
Stock-based compensation expense (2)		3.7			5.4			4.6
Restructuring charges (3)		0.2			—			1.5
Acquisition related costs (4)		—			0.2			—
Legal-related costs (5)		—			2.2			—
Income tax effect of non-GAAP adjustments (6)		(1.6)			(2.6)			(1.8)
Income tax effect of valuation allowance (7)		2.9			2.1			3.5
Non-GAAP net income attributable to UCT	$	7.6		$	43.3		$	42.6

Reconciliation of GAAP Income from operations to Non-GAAP Income from operations (in millions)
Reported income from operations on a GAAP basis	$	12.4		$	45.7		$	43.8
Amortization of intangible assets (1)		5.8			8.1			7.0
Stock-based compensation expense (2)		3.7			5.4			4.6
Restructuring charges (3)		0.2			—			1.5
Acquisition related costs (4)		—			0.2			—
Legal-related costs (5)		—			2.2			—
Non-GAAP income from operations	$	22.1		$	61.6		$	56.9

Reconciliation of GAAP Operating margin to Non-GAAP Operating margin
Reported operating margin on a GAAP basis		2.9	%		8.1	%		7.7	%
Amortization of intangible assets (1)		1.3	%		1.4	%		1.2	%
Stock-based compensation expense (2)		0.9	%		1.0	%		0.8	%
Restructuring charges (3)		0.0	%		—			0.3	%
Acquisition related costs (4)		—			0.1	%		—
Legal-related costs (5)		—			0.4	%		—
Non-GAAP operating margin		5.1	%		10.9	%		10.0	%

Reconciliation of GAAP Gross profit to Non-GAAP Gross profit (in millions)
Reported gross profit on a GAAP basis	$	73.0		$	113.7		$	108.5
Amortization of intangible assets (1)		1.5			1.7			1.5
Stock-based compensation expense (2)		0.3			0.5			0.4
Restructuring charges (3)		—			—			0.3
Non-GAAP gross profit	$	74.8		$	115.9		$	110.7

Reconciliation of GAAP Gross margin to Non-GAAP Gross margin
Reported gross margin on a GAAP basis		16.8	%		20.2	%		19.2	%
Amortization of intangible assets (1)		0.4	%		0.2	%		0.3	%
Stock-based compensation expense (2)		0.1	%		0.1	%		0.0	%
Restructuring charges (3)		—			—			0.0	%
Non-GAAP gross margin		17.3	%		20.5	%		19.5	%

Reconciliation of GAAP Earnings Per Diluted Share to Non-GAAP Earnings Per Diluted Share
Reported net earnings (loss) on a GAAP basis	$	(0.08)		$	0.61		$	0.61
Amortization of intangible assets (1)		0.13			0.18			0.15
Stock-based compensation expense (2)		0.08			0.12			0.10
Restructuring charges (3)		0.00			—			0.03
Acquisition related costs (4)		—			0.00			—
Legal-related costs (5)		—			0.05			—
Income tax effect of non-GAAP adjustments (6)		(0.03)			(0.06)			(0.04)
Income tax effect of valuation allowance (7)		0.07			0.05			0.08
Non-GAAP net earnings	$	0.17		$	0.95		$	0.93
Weighted average number of diluted shares (in millions) on a non-GAAP basis		45.3			45.6			45.7


ULTRA CLEAN HOLDINGS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP EFFECTIVE INCOME TAX RATE
	Three Months Ended
	March 31,			April 1,			December 30,
	2023			2022			2022
(in millions, except percentages)
Provision for income taxes on a GAAP basis	$	3.5		$	8.5		$	8.5
Income tax effect of non-GAAP adjustments (6)		1.6			2.6			1.8
Income tax effect of valuation allowance (7)		(2.9)			(2.1)			(3.5)
Non-GAAP provision for income taxes	$	2.2		$	9.0		$	6.8

Income before income taxes on a GAAP basis	$	3.9		$	39.3		$	36.9
Amortization of intangible assets (1)		5.8			8.1			7.0
Stock-based compensation expense (2)		3.7			5.4			4.6
Restructuring charges (3)		0.2			—			1.5
Acquisition related costs (4)		—			0.2			—
Legal-related costs (5)		—			2.2			—
Non-GAAP income before income taxes	$	13.6		$	55.2		$	50.0
Effective income tax rate on a GAAP basis		89.7	%		21.7	%		23.0	%
Non-GAAP effective income tax rate		16.0	%		16.4	%		13.7	%

1 Amortization of intangible assets related to the Company's business acquisitions
2 Represents compensation expense for stock granted to employees and directors
3 Represents severance, retention and costs related to facility closures
4 Represents acquisition activity costs
5 Represents estimated costs related to certain legal proceedings
6 Tax effect of items (1) through (5) above based on the non-GAAP tax rate
7 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