Ultra Clean Holdings, Inc. (NASDAQ:UCTT) Q4 2023 Earnings Call Transcript
Ultra Clean Holdings, Inc. (NASDAQ:UCTT) Q4 2023 Earnings Call Transcript February 21, 2024
Ultra Clean Holdings, Inc. beats earnings expectations. Reported EPS is $0.19, expectations were $0.12. Ultra Clean Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, ladies and gentlemen, and welcome to the Ultra Clean Technology Q4 and Full Year 2023 Earnings Call and Webcast Conference. [Operator Instructions] This call is being recorded on Wednesday, February 21, 2024. I would now like to turn the conference over to Rhonda Bennetto. Please go ahead.
Rhonda Bennetto: Thank you, Operator, good afternoon, everyone, and thank you for joining us. With me today are Jim Scholhamer, Chief Executive Officer; and Sheri Savage, Chief Financial Officer. Jim will begin with some prepared remarks about the business and Sheri will follow with the financial review, then we'll open up the call for questions. Today's call contains forward-looking statements that are subject to risks and uncertainties. For more information, please refer to the Risk Factors section in our SEC filings. All forward-looking statements are based on estimates, projections, and assumptions as of today, and we assume no obligation to update them after this call. 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. And with that, I'd like to turn the call over to Jim. Jim?
Jim Scholhamer: Thank you, Rhonda, and welcome everyone to our Q4 2023 earnings call and webcast. I'll start by providing a brief overview of our Q4 results that Sheri will expand on in her commentary, and also provide our thoughts on the current state of the industry and our plans to capitalize on the significant opportunity we see over the long term. Fourth quarter total revenue grew modestly as expected from the prior quarter. Visibility remained less than ideal as our products customers continued to shift mix and location to help expedite the normalization of inventories. Our global footprint and ability to quickly flex to meet demand was an advantage in the quarter. Our services business stayed relatively flat as customers maintained current output levels.
For 2023, our revenue and earnings largely reflected the overall decline seen across the broader semiconductor market. As we've done in previous downturns, we viewed last year as an opportunity to invest in several strategic actions that best position us to capitalize on the sizable growth opportunities that lie ahead. Optimizing operations and increasing capacity to support the next ramp were top priorities in 2023. In collaboration with our customers to align with their technology roadmaps, we enhanced our global footprint and capability with new state-of-the-art manufacturing facilities with added capacity, optimized workflows, increased automation and higher levels of vertical integration. For example, in Chandler, Arizona, we've moved six buildings into a single new facility, and in the Czech Republic we relocated three buildings into one.
These two new cutting edge, scalable sites will meet the increasing demands of our growing customer base. We also expanded our footprint in Malaysia to support future demand from the region. This lower cost manufacturing center of excellence will have a positive impact on our overall profitability as volumes increase over time. On the services side, we consolidated and modernized two sites into one in Phoenix, and our new facility in Ireland is scaling production to meet the demands of our customers in Northwest Europe. With these value-add enhancements now in place and more ongoing, we have the global presence, capacity and efficiency to support $4 billion in revenue and grow profitably on a much larger scale heading into the next ramp and beyond.
And last but not least, we expanded our suite of offerings with the acquisition of HIS Innovations Group, further expanding our reach into the global subfab market. UCT now offers integrated vacuum systems and ancillary equipment solutions that integrate the subfab ecosystem in a way that is value-add and scalable. As the demand for next-generation devices increases with the deployment of new technologies like 5G, AI and the Internet of Things, the need for advanced fabs capable of producing higher density, faster and more powerful efficient chips will increase. UCT's broad capabilities in design and manufacturing will enable us to continue to develop solutions that simplify installations, support and maintenance of these process tools critical to chip production.
With 2024 in its early days, current demand remains tepid as reflected in our Q1 guidance. However, our internal marketing research is aligned with broader industry sentiment and our customers that overall market dynamics are improving and should help drive a stronger exit to the year. Looking to 2025 and beyond, the business case supporting extensive investment for WFE is very compelling with global semiconductor sales widely predicted to reach $1 trillion by the end of the decade, requiring nearly twice the current capital spend. We are continuously innovating and introducing new solutions, expanding our market presence, and building momentum at crucial technology turning points, especially in the litho space, where we are making great strides with a key customer.
Some of these module types are valued at roughly five times higher than typical modules, and we are ramping our deliveries over the next several quarters. Our solutions are increasingly gaining attention and will be a significant growth driver in the months and years ahead as many of the market inflections we are collaborating on with our customers are still in the early stages of adoption. In summary, UCT has emerged as a more valuable, stronger company with greater profitability after each downturn. During the past five quarters, we have been busy setting the stage to further expand our leadership position with a broader suite of offerings as a manufacturing partner of choice for our growing customer base well into the future. And with that, I'll turn the call over to Sheri.
Sheri?
Sheri Savage: Thanks Jim and good afternoon everyone. Thanks for joining us. In today's discussion, I'll be referring to non-GAAP numbers only. As Jim noted, demand for our products improved moderately in the fourth quarter with a dynamic environment as customers adjusted their mix and location to help rebalance inventories. Our service business remained steady as customers maintained utilization levels. Total revenue for the fourth quarter came in at $444.8 million compared to $435 million in the prior quarter. Revenue from products increased to $389.7 million compared to $380.9 million last quarter. Services revenue was $55.1 million compared to $54.1 million in Q3. For the full year, total revenue was $1.7 billion compared to $2.4 billion in 2022, reflective of the broader industry downturns.
Total gross margin for the fourth quarter increased to 16.7% from 15.5% last quarter. Products gross margin was 14.6% compared to 13.8% in the prior quarter. And services was 31.7% compared to 27.4% in Q3. Margins can be influenced by fluctuations in volume, mix and manufacturing region, as well as material and transportation costs, so there will be variances quarter-to-quarter. Total gross margin for 2023 was 16.6% compared to 20.2% in the prior year. Operating expense for the quarter was $51.3 million compared to $48.6 million in Q3. As a percentage of revenue, operating expense was 11.5% compared to 11.2% in the prior quarter. For the year, operating expense as a percentage of revenue was 11.6% compared to 9.3% in the prior year. Total operating margin for the quarter improved to 5.2% compared to 4.4% in the third quarter.
Margin from our products division was 4.6% compared to 4.5% in the prior quarter and services margin was 9.5% compared to 3.7% in the prior quarter. The improvement in services margin was due to increased site and overhead efficiencies. For the full year, operating margin was 4.9% compared to 11% in the prior year due to lower overall revenue levels and decreased efficiencies typical during an industry trough. Based on $44.9 million shares outstanding, earnings per share for the quarter were $0.19, on net income of $8.5 million compared to $0.04 on net income of $2 million in the prior quarter. Current quarter earnings per share were above guidance from better factory efficiencies and discretionary spending management and favorable other income and expense due to foreign exchange benefits and government grants.
For the full year, earnings per share were $0.56 on net income of $25.2 million compared to $3.98 on net income of $181.9 million in 2022. Our tax rate for the quarter was 16.4% compared to 37.3% last quarter, when our tax rate was chewed up for year-to-date expense. For the full year, our tax rate was 18.9% and we expected to stay in the high-teens for 2024. Turning to the balance sheet. Our cash and cash equivalents were $307 million compared to $342 million in Q3. We use cash on hand to acquire HIS and make strategic capital investments to support our growth plan into the next ramp. Cash flow from operations was $35.3 million compared to $36.2 million last quarter. For the full year, cash flow from operations was $135.9 million compared to $47.2 million in the prior year.
During the quarter, we repurchased 239,000 shares at a total cost of $5.7 million, bringing total repurchased shares in 2023 to 1.9 million shares at an aggregate cost of $29.4 million, leaving $108 million remaining on our three-year repurchase program. We are pleased with the execution of our plan to optimize our capital deployment strategy throughout 2023 despite a challenging environment, generating nearly $136 million in cash flow from operations enabled us to invest for future growth, pay down $39 million in debt, execute on our share repurchase plan and complete the strategic acquisition of HIS Innovations Group. Turning to our guidance, we project total revenue for the first quarter of 2024 between $430 million and $480 million. We expect EPS in the range of $0.03 to $0.23, reflecting higher expenses usually seen in the first quarter of every year.
And with that, I'd like to turn the call over to the Operator for questions.
See also 12 Best Ways To Leave Money To A Child and 10 Countries with the Most Military Drones in the World.
To continue reading the Q&A session, please click here.
