Ultra Clean Holdings, Inc. 2026 Q3 Earnings Call

Please go ahead. Thank you, operator.

Good afternoon, everyone, and thank you for joining us. With me today are James Xiao, CEO, and Mike Keogh, CFO. James will start with some prepared remarks about the industry and highlight some of the opportunities ahead for UCT. Mike will follow with the financial review, and then we will 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. With that, I would like to turn the call over to James.

James, please go ahead. Thank you, Rhonda, and good afternoon, everyone.

We appreciate you joining us for our third quarter 2026 earnings call. With me today is Mike Keogh, who came on board as UCT's Chief Financial Officer in August. This is Mike's first earnings call with us, and I will share a few more words about him shortly. This afternoon, I will briefly highlight our third quarter result, share our view of the industry, and update you on our UCT 3.0 strategy. Mike will then review our financials, and we will open the call for questions. I am very pleased to report that UCT delivered another strong quarter. Revenue from both products and service came in ahead of our expectations. Our bottom line also outperformed, reflecting our continued focus on improving profitability. These results highlight healthy demand across our end markets and solid execution by our team around the world.

This quarter also proved the effectiveness of our ramp readiness strategy. By planning capacity ahead of demand, we execute on the operational agility required to accommodate excessive orders and deliver them on time. AI demand continued to deliver strong investment across the semiconductor ecosystem, with the world's leading chip makers and equipment companies expanding capacity to support multi-year AI growth. As AI shifts from training to everyday use, it is creating demand across the entire chip stack. Leading-edge foundries are adding capacity on new nodes. Memory makers are adding clean room space and fab capacity for DRAM and next gen HBM. Advanced packaging is growing rapidly to fulfill HBM demand. These are the areas where UCT is the strongest, and as volume and complexity increase, our customers rely even more on our subsystems and engineering expertise.

Based on the visibility our customers are sharing with us, we now expect 2027 wafer fab equipment spending to be above $200 billion. That outlook is grounded in what we can see and measure. The signs that influence our decision-making are the length of our customers' forecast, the fab utilization, and the availability of critical components across the supply chain. Today, all three remain healthy for us. As our business continue to scale, we are prepared to anticipate and manage the supply chain excursions. Because we've had support by real-time visibility from our internal systems and from our customers, we can identify potential constraints early and address them quickly, so our customers' ramp continue uninterrupted. In a tight supply environment, that reliability is one of the most valuable performance we continue to deliver to our customer.

Through our UCT 3.0 strategy, we're using the upcycle not only to expand our capacity, but to strengthen our technical capabilities and accelerate our response time. Ramp readiness is driving disciplined growth. NPX is deepening our co-innovation partnership with our customers. Digital transformation is improving our operational efficiency and speed. Being ramp ready is fundamental to our customer first mindset. Ensuring we have the capacity and supply chain in place before our customer need them. The 26,000 square feet of clean room space expansion was built out in Malaysia, came online earlier than anticipated, which help us to outperform this quarter. Over the next few quarters, we expect to double our weldment capacity in Cebu, Philippines, and to bring additional clean room capacity online in Singapore and the Czech Republic. We also expect to double our vertical integrated manufacturing capacity in Malaysia and Thailand next year.

This help address the critical component constraints that are limiting the industry today. By producing more of these components in-house, we gain greater control over our supply, improve on-time delivery to our customers, and position UCT to capture additional share during this ramp. Our NPI initiative continue to make solid progress within our growing Center of Excellence. Recently, we secured eight new program wins across etch, ALD, PVD, and lithography applications. Spanning gas delivery, thermal, and other critical subsystems. A similar number of programs are now moving through development and qualification across etch, deposition, lithography, and metrology. Co-innovating earlier with our customers strengthens our position to be qualified as the first supplier and to capture more high-value content per tool.

We expect these programs to gain momentum as our customers advance through their technology roadmap and node transitions in the coming years, and our product roadmap are fully aligned with our customers. Digital transformation is helping us scale more efficiently. Our initiatives are focused on the processes which we can make the most impact, starting with the quote-to-fulfill, the core of our value chain. We've also launched an integrated planning platform that links demand, supply, inventory, and the capacity in real time. In a tight supply environment, keeping materials moving smoothly between our customer, UCT, and our suppliers is critical. It is equally important that data move just as smoothly to enable the smooth material flow. This platform we launched automates that exchange, so when the customer demand changes, we can pass that signal quickly through our supply chain and respond with speed and agility.

We believe UCT has become a more strategically important partner to the world's leading equipment companies in manufacturing, in engineering, and in service. Our objective is unchanged, to move fast, stay agile, and deliver what matters most to our customers. Continuing to execute on those principles will create sustainable long-term value for our shareholders. Before I hand the call over, I'd like to formally welcome Mike to UCT. He has already made significant impact working very closely with our leadership teams on operating discipline, footprint optimization, capacity planning, and our digital transformation initiative. We're very glad to have him on the team. Mike, now over to you for the financial review.

Thank you, James, and good afternoon, everyone. I'm pleased to join you for my first earnings call as UCT's Chief Financial Officer. I joined UCT because I see compelling growth opportunity as the semiconductor industry enters what we believe are the early stages of a multi-year growth cycle. This is an exciting inflection point for our industry and UCT's deep technical capabilities and long-standing customer relationships position us well to support the demands we're seeing today and the opportunities ahead. My priorities will center on strengthening execution and disciplined capital allocation. That includes driving cash conversion and building the financial processes and capabilities to support UCT as we scale. With that, let me turn to our quarterly financial results. In my prepared remarks, I will be referring to non-GAAP numbers only.

As James mentioned, the third quarter marked another period of strong performance for UCT, with top and bottom line results above the high end of our guidance. Revenue was $759 million, a record quarter, up 17.7% sequentially and 48.8% year-over-year. Gross margin was 17.3%, up 60 basis points from last quarter, and operating margin was 9.0%, up from 7.0% in Q2. EPS was $1.15, up $0.45 over the prior quarter. Semiconductor products represented 86% of total revenue, including 52% from foundry and logic, and 34% from memory. Services represented 10% of revenue, while non-semiconductor markets accounted for the remaining 4%. Our two largest customers contributed 61% of total revenue. Products revenue was $681.9 million, up 19.1% sequentially.

The increase in sales was driven primarily by strength in etch and deposition, supporting gate-all-around, and high-bandwidth memory, which positions us well for the current wave of node transitions as the industry ramps. Services revenue was $77.1 million, up 6.7% sequentially on strength across both our OEM and fab customers. Services revenue growth traditionally lags products as increases are tied to wafer starts. We expect services revenue to increase incrementally over time as the new U.S. fabs come online and ramp, with a larger contribution as wafer starts increase throughout 2027 and 2028. Our revenue follows the same underlying demand as our largest customers, but not always quarter to quarter. Timing differences can be caused by product mix, where our content is integrated, shipping flows, revenue recognition, and fiscal calendars.