Ultra Clean Reports Third Quarter 2020 Financial Results - Ultra Clean Hldgs (NASDAQ:UCTT)

HAYWARD, Calif., Oct. 28, 2020 /PRNewswire/ -- Ultra Clean Holdings, Inc. UCTT, today reported its financial results for the third quarter ended September 25, 2020.

"Delivering another quarter of solid revenue and earnings is strong evidence of UCTT's execution capabilities as we drive towards our longer-term strategic and financial goals," said Jim Scholhamer, CEO. "Our diversified suite of quality products and services is capturing additional business from existing customers and gaining traction with new customers. Industry momentum remains steady as our end markets expand to power a new generation of semiconductor devices, giving us confidence in our ability to sustainably outperform over the long-term."

Third Quarter 2020 GAAP Financial Results

Total revenue was $363.3 million. SPS contributed $294.4 million and SSB added $68.9 million. Total gross margin was 20.5%, operating margin was 9.6%, and net income was $24.4 million or $0.60 and $0.59 per basic and diluted share. This compares to total revenue of $344.8 million, gross margin of 21.4%, operating margin of 8.9%, and net income of $21.3 million or $0.53 and $0.52 per basic and diluted share in the prior quarter.

Third Quarter 2020 Non-GAAP Financial Results

On a non-GAAP basis, gross margin was 21.0%, operating margin was 11.6%, and net income was $29.9 million or $0.73 per diluted share. This compares to gross margin of 22.0%, operating margin of 11.7%, and net income of $30.5 million or $0.75 per diluted share in the prior quarter.

Fourth Quarter 2020 Outlook

Due to limited visibility resulting from the pandemic, the Company has widened its guidance ranges to reflect the heightened uncertainty in the marketplace. The Company expects revenue in the range of $345.0 million to $375.0 million and GAAP diluted net income per share to be between $0.44 and $0.58. The Company expects non-GAAP diluted net income per share to be between $0.63 and $0.77.

Conference Call

The call will take place 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 10148588. 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, ultra-high purity cleaning and analytical services primarily for the semiconductor industry. 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, and 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 currently defines non-GAAP net income as net income (loss) before amortization of intangible assets, restructuring charges, executive transition costs, acquisition costs, fair value adjustments, depreciation adjustments, stock-based compensation, and the tax effects of the foregoing adjustments.

A reconciliation of our guidance for non-GAAP net income per diluted share for the following 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 27, 2019 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, Vice President Investor Relations
rbennetto@uct.com

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

	Three Months Ended				Nine Months Ended
	September 25,		September 27,		September 25,		September 27,
	2020		2019		2020		2019

Revenues:
Product	$	294,381	$	200,024	$	831,656	$	610,660
Services		68,895		54,299		197,298		169,171
Total revenues		363,276		254,323		1,028,954		779,831
Cost of revenues:
Product		243,582		170,144		687,613		525,782
Services		45,118		36,675		127,225		113,579
Total cost of revenues		288,700		206,819		814,838		639,361
Gross profit		74,576		47,504		214,116		140,470
Operating expenses:
Research and development		3,514		3,634		10,765		10,986
Sales and marketing		5,989		5,877		17,657		16,638
General and administrative		30,251		29,735		97,498		87,437
Total operating expenses		39,754		39,246		125,920		115,061
Income from operations		34,822		8,258		88,196		25,409
Interest income		226		74		696		416
Interest expense		(4,133)		(6,636)		(13,094)		(19,899)
Other income (expense), net		(1,079)		3,070		(3,210)		4,282
Income before provision for income taxes		29,836		4,766		72,588		10,208
Provision for income taxes		4,776		3,878		14,932		8,220
Net income		25,060		888		57,656		1,988
Less: Net income attributable to noncontrolling interests		695		375		2,605		1,072
Net income attributable to UCT	$	24,365	$	513	$	55,051	$	916

Net income per share attributable to UCT common stockholders:
Basic	$	0.60	$	0.01	$	1.37	$	0.02
Diluted	$	0.59	$	0.01	$	1.35	$	0.02
Shares used in computing net income per share:
Basic		40,367		39,557		40,091		39,363
Diluted		41,149		40,025		40,929		39,746

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

	September 25,		December 27,
	2020		2019
ASSETS
Current assets:
Cash and cash equivalents	$	176,131	$	162,531
Accounts receivable, net of allowance		145,523		112,694
Inventories		175,332		172,420
Prepaid expenses and other current assets		17,150		19,400
Total current assets		514,136		467,045

Property, plant and equipment, net		150,487		145,272
Goodwill		171,132		171,087
Intangibles assets, net		165,469		180,318
Deferred tax assets, net		15,773		15,498
Operating lease right-of-use assets		38,062		34,877
Other non-current assets		5,192		5,209
Total assets	$	1,060,251	$	1,019,306

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings	$	7,515	$	8,842
Accounts payable		111,398		133,058
Accrued compensation and related benefits		30,752		24,825
Operating lease liabilities		12,090		13,179
Other current liabilities		33,543		30,694
Total current liabilities		195,298		210,598

Bank borrowings, net of current portion		272,605		283,390
Deferred tax liabilities		25,183		25,183
Operating lease liabilities		31,242		28,828
Other liabilities		17,468		18,800
Total liabilities		541,796		566,799

Equity:
UCT stockholders' equity:
Common stock		305,994		297,693
Retained earnings		195,418		140,367
Accumulated other comprehensive loss		(1,343)		(1,334)
Total UCT stockholders' equity		500,069		436,726
Noncontrolling interest		18,386		15,781
Total equity		518,455		452,507
Total liabilities and equity	$	1,060,251	$	1,019,306

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

	Nine Months Ended
	September 25,		September 27,
	2020		2019
Cash flows from operating activities:
Net income	$	57,656	$	1,988
Adjustments to reconcile net income to net cash provided by operating activities (excluding assets acquired and liabilities assumed):
Depreciation and amortization		35,064		32,152
Stock-based compensation		9,463		9,078
Deferred income taxes		(273)		(2,115)
Change in the fair value of financial instruments and earn-out liability		4,376		(3,720)
Others		(1,939)		25
Changes in assets and liabilities:
Accounts receivable		(32,677)		(2,376)
Inventories		(2,964)		42,489
Prepaid expenses and other current assets		325		1,994
Other non-current assets		17		(776)
Accounts payable		(21,919)		(282)
Accrued compensation and related benefits		5,916		8,757
Operating lease assets and liabilities		(791)		2,332
Income taxes payable		3,169		(1,473)
Other liabilities		(2,538)		1,000
Net cash provided by operating activities		52,885		89,073
Cash flows from investing activities:
Purchases of property, plant and equipment		(26,535)		(12,665)
Proceeds from sale of property and equipment, including insurance proceeds		6,614		2,698
Acquisition of Dynamic Manufacturing Solutions, LLC		—		(29,873)
Net cash used in investing activities		(19,921)		(39,840)
Cash flows from financing activities:
Proceeds from bank borrowings		69,670		34,805
Proceeds from issuance of common stock		260		126
Payments on bank borrowings and finance leases		(85,688)		(64,534)
Payment of contingent earn-out		(1,428)		—
Withholding tax on employee equity compensation		(1,422)		(1,652)
Net cash used in financing activities		(18,608)		(31,255)
Effect of exchange rate changes on cash and cash equivalents		(756)		(3,433)
Net increase in cash and cash equivalents		13,600		14,545
Cash and cash equivalents at beginning of period		162,531		144,145
Cash and cash equivalents at end of period	$	176,131	$	158,690

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

		GAAP						Non-GAAP
		Three Months Ended						Three Months Ended
	September 25, 2020						September 25, 2020
	SPS		SSB		Consolidated		SPS		SSB		Consolidated
Revenues	$	294,381	$	68,895	$	363,276	$	294,381	$	68,895	$	363,276
Gross profit	$	50,799	$	23,777	$	74,576	$	51,442	$	24,799	$	76,241
Gross margin		17.3%		34.5%		20.5%		17.5%		36.0%		21.0%
Income from operations	$	27,404	$	7,418	$	34,822	$	31,716	$	10,247	$	41,963
Operating margin		9.3%		10.8%		9.6%		10.8%		14.9%		11.6%

							Three Months Ended
							September 25, 2020
							SPS		SSB		Consolidated
Reconciliation of GAAP Gross profit to Non-GAAP Gross profit (in thousands)
Reported gross profit on a GAAP basis							$	50,799	$	23,777	$	74,576
Amortization of intangible assets (1)								-		1,022		1,022
Restructuring charges (2)								260		-		260
Stock-based compensation expense (3)								383		-		383
Non-GAAP gross profit							$	51,442	$	24,799	$	76,241

Reconciliation of GAAP Gross margin to Non-GAAP Gross margin
Reported gross margin on a GAAP basis								17.3%		34.5%		20.5%
Amortization of intangible assets (1)								0.0%		1.5%		0.3%
Restructuring charges (2)								0.1%		-		0.1%
Stock-based compensation expense (3)								0.1%		-		0.1%
Non-GAAP gross margin								17.5%		36.0%		21.0%

Reconciliation of GAAP Income from operations to Non-GAAP Income from operations (in thousands)
Reported income from operations on a GAAP basis							$	27,404	$	7,418	$	34,822
Amortization of intangible assets (1)								1,173		3,776		4,949
Restructuring charges (2)								260		-		260
Stock-based compensation expense (3)								2,879		405		3,284
Gain on the sale of property (4)								-		(1,352)		(1,352)
Non-GAAP income from operations							$	31,716	$	10,247	$	41,963

Reconciliation of GAAP Operating margin to Non-GAAP Operating margin
Reported operating margin on a GAAP basis								9.3%		10.8%		9.6%
Amortization of intangible assets (1)								0.4%		5.5%		1.4%
Restructuring charges (2)								0.1%		0.0%		0.1%
Stock-based compensation expense (3)								1.0%		0.6%		0.9%
Gain on the sale of property (4)								0.0%		-2.0%		-0.4%
Non-GAAP operating margin								10.8%		14.9%		11.6%

1 Amortization of intangible assets related to the Company's acquisitions of Thermal, FDS, QGT and DMS
2 Represents severance, retention and costs related to facility closures
3 Represents compensation expense for stock granted to employees and directors
4 Represents gain realized on the sale of land in South Korea

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

	Three Months Ended
	September 25,		September 27,		June 26,
	2020		2019		2020
Reconciliation of GAAP Net Income to Non-GAAP Net Income (in thousands)
Reported net income attributable to UCT on a GAAP basis	$	24,365	$	513	$	21,264
Amortization of intangible assets (1)		4,949		5,093		4,949
Restructuring charges (2)		400		1,393		1,572
Stock-based compensation expense (3)		3,284		3,408		3,104
Fair value adjustments (4)		200		129		1,209
Acquisition related costs (5)		-		200		-
Gain on the sale of property (6)		(1,352)		-		-
Income tax effect of non-GAAP adjustments (7)		(1,352)		(2,351)		(2,037)
Income tax effect of valuation allowance (8)		(616)		2,781		470
Non-GAAP net income attributable to UCT	$	29,878	$	11,166	$	30,531

Reconciliation of GAAP Income from operations to Non-GAAP Income from operations (in thousands)
Reported income from operations on a GAAP basis	$	34,822	$	8,258	$	30,825
Amortization of intangible assets (1)		4,949		5,093		4,949
Restructuring charges (2)		260		954		1,572
Stock-based compensation expense (3)		3,284		3,408		3,104
Fair value adjustments (4)		-		129		-
Acquisition related costs (5)		-		200		-
Gain on the sale of property (6)		(1,352)		-		-
Non-GAAP income from operations	$	41,963	$	18,042	$	40,450

Reconciliation of GAAP Operating margin to Non-GAAP Operating margin
Reported operating margin on a GAAP basis		9.6%		3.2%		8.9%
Amortization of intangible assets (1)		1.4%		2.0%		1.4%
Restructuring charges (2)		0.1%		0.4%		0.5%
Stock-based compensation expense (3)		0.9%		1.3%		0.9%
Fair value adjustments (4)		0.0%		0.1%		0.0%
Acquisition related costs (5)		0.0%		0.1%		0.0%
Gain on the sale of property (6)		-0.4%		0.0%		0.0%
Non-GAAP operating margin		11.6%		7.1%		11.7%

Reconciliation of GAAP Gross profit to Non-GAAP Gross profit (in thousands)
Reported gross profit on a GAAP basis	$	74,576	$	47,504	$	73,878
Amortization of intangible assets (1)		1,022		1,023		1,022
Restructuring charges (2)		260		154		253
Stock-based compensation expense (3)		383		514		726
Fair value adjustments (4)		-		129		-
Non-GAAP gross profit	$	76,241	$	49,324	$	75,879

Reconciliation of GAAP Gross margin to Non-GAAP Gross margin
Reported gross margin on a GAAP basis		20.5%		18.7%		21.4%
Amortization of intangible assets (1)		0.3%		0.4%		0.3%
Restructuring charges (2)		0.1%		0.1%		0.1%
Stock-based compensation expense (3)		0.1%		0.2%		0.2%
Fair value adjustments (4)		0.0%		0.0%		0.0%
Non-GAAP gross margin		21.0%		19.4%		22.0%

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	$	(4,986)	$	(3,492)	$	(3,055)
Restructuring charges (2)		140		439		-
Fair value adjustments (4)		200		-		1,209
Non-GAAP interest and other income (expense)	$	(4,646)	$	(3,053)	$	(1,846)

	Three Months Ended
	September 25,		September 27,		June 26,
	2020		2019		2020
Reconciliation of GAAP Earnings Per Diluted Share to Non-GAAP Earnings Per Diluted Share
Reported net income on a GAAP basis	$	0.59	$	0.01	$	0.52
Amortization of intangible assets (1)		0.12		0.13		0.12
Restructuring charges (2)		0.01		0.03		0.04
Stock-based compensation expense (3)		0.08		0.09		0.08
Fair value adjustments (4)		0.00		0.00		0.03
Gain on the sale of property (6)		(0.03)		-		-
Income tax effect of non-GAAP adjustments (7)		(0.03)		(0.06)		(0.05)
Income tax effect of valuation allowance (8)		(0.01)		0.07		0.01
Non-GAAP net income	$	0.73	$	0.27	$	0.75
Weighted average number of diluted shares (thousands) on a non-GAAP basis		41,149		40,025		40,834

ULTRA CLEAN HOLDINGS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP EFFECTIVE INCOME TAX RATE

	Three Months Ended
	September 25,		September 27,		June 26,
	2020		2019		2020
(in thousands, except percentages)
Provision for income taxes on a GAAP basis	$	4,776	$	3,878	$	5,691
Income tax effect of non-GAAP adjustments (7)		1,352		2,351		2,037
Income tax effect of valuation allowance (8)		616		(2,781)		(470)
Non-GAAP provision for income taxes	$	6,744	$	3,448	$	7,258

Income before income taxes on a GAAP basis	$	29,836	$	4,766	$	27,770
Amortization of intangible assets (1)		4,949		5,093		4,949
Restructuring charges (2)		400		1,393		1,572
Stock-based compensation expense (3)		3,284		3,408		3,104
Fair value adjustments (4)		200		129		1,209
Acquisition related costs (5)		-		200		-
Gain on the sale of property (6)		(1,352)		-		-
Non-GAAP income before income taxes	$	37,317	$	14,989	$	38,604
Effective income tax rate on a GAAP basis		16.0%		81.4%		20.5%
Non-GAAP effective income tax rate		18.1%		23.0%		18.8%

1 Amortization of intangible assets related to the Company's acquisitions of AIT, Thermal, FDS, QGT and DMS
2 Represents severance, retention and costs related to facility closures
3 Represents compensation expense for stock granted to employees and directors
4 Fair value adjustments related to contingent consideration, purchase obligation, DMS' sold inventories
5 Represents costs related to the acquisition of DMS
6 Represents gain realized on the sale of land in South Korea
7 Tax effect of items (1) through (6) above based on the non-GAAP tax rate shown below
8 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.

SOURCE Ultra Clean Holdings, Inc.

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