Ultra Clean Reports Third Quarter Financial Results

ULTRA CLEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except per share data)

Three Months Ended

Nine Months Ended

September 30,

September 24,

September 30,

September 24,

2022

2021

2022

2021

Revenues:

Product

$

556,282

$

481,949

$

1,575,129

$

1,270,080

Services

78,724

71,703

232,718

216,399

Total revenues

635,006

553,652

1,807,847

1,486,479

Cost of revenues:

Product

459,322

393,343

1,299,980

1,044,831

Services

51,291

46,239

151,379

140,757

Total cost of revenues

510,613

439,582

1,451,359

1,185,588

Gross profit

124,393

114,070

356,488

300,891

Operating expenses:

Research and development

7,358

6,463

21,436

16,737

Sales and marketing

13,539

13,828

41,190

34,088

General and administrative

46,424

43,195

139,948

127,125

Net loss on divestitures

20,796

-

77,438

-

Total operating expenses

88,117

63,486

280,012

177,950

Income from operations

36,276

50,584

76,476

122,941

Interest income

241

114

431

271

Interest expense

(9,376)

(6,885)

(23,067)

(17,549)

Other income (expense), net

(2,078)

(1,462)

(2,439)

(6,436)

Income before provision for income taxes

25,063

42,351

51,401

99,227

Provision for income taxes

12,154

8,392

29,404

21,628

Net income

12,909

33,959

21,997

77,599

Less: Net income attributable to noncontrolling interests

3,174

2,079

9,427

3,624

Net income attributable to UCT

$

9,735

$

31,880

$

12,570

$

73,975

Net income per share attributable to UCT common stockholders:

Basic

$

0.21

$

0.71

$

0.28

$

1.73

Diluted

$

0.21

$

0.70

$

0.28

$

1.69

Shares used in computing net income per share:

Basic

45,421

44,757

45,189

42,883

Diluted

45,640

45,404

45,681

43,791

ULTRA CLEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; in thousands)

September 30,

December 31,

2022

2021

ASSETS

Current assets:

  Cash and cash equivalents

$

453,506

$

466,455

  Accounts receivable, net of allowance

235,975

250,147

  Inventories

405,094

379,235

  Prepaid expenses and other current assets

41,542

41,260

Total current assets

1,136,117

1,137,097

Property, plant and equipment, net

242,324

242,347

Goodwill

248,796

270,044

Intangible assets, net

194,810

245,696

Deferred tax assets, net

37,294

37,607

Operating lease right-of-use assets

87,154

83,357

Other non-current assets

9,551

9,242

Total assets

$

1,956,046

$

2,025,390

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

  Bank borrowings

$

20,139

$

22,071

  Accounts payable

271,284

332,897

  Accrued compensation and related benefits

47,538

46,790

  Operating lease liabilities

16,138

17,299

  Other current liabilities

52,349

50,060

Total current liabilities

407,448

469,117

Bank borrowings, net of current portion

509,237

529,919

Deferred tax liabilities

54,835

54,889

Operating lease liabilities

69,023

65,923

Other liabilities

13,396

12,894

Total liabilities

1,053,939

1,132,742

Equity:

UCT stockholders' equity:

  Common stock

523,351

511,628

  Retained earnings

349,987

337,417

  Accumulated other comprehensive loss

(16,514)

(167)

Total UCT stockholders' equity

856,824

848,878

  Non-controlling interest

45,283

43,770

Total equity

902,107

892,648

Total liabilities and stockholders' equity

$

1,956,046

$

2,025,390

ULTRA CLEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)

Nine Months Ended

September 30,

September 24,

2022

2021

Cash flows from operating activities:

Net income

$

21,997

$

77,599

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

     Depreciation and amortization

55,682

50,303

Stock-based compensation

14,852

11,498

Deferred income taxes

810

811

Change in the fair value of financial instruments

(1,515)

12,991

Gain from insurance proceeds

—

(7,332)

Net loss on divestitures

77,438

—

Others

(142)

277

Changes in assets and liabilities, net of effects of acquisitions and divestitures:

Accounts receivable

2,043

(35,358)

Inventories

(45,656)

(70,513)

Prepaid expenses and other current assets

(3,068)

(752)

Other non-current assets

(2,154)

(257)

Accounts payable

(43,899)

119,472

Accrued compensation and related benefits

2,100

6,981

Operating lease assets and liabilities

(2,568)

(341)

Income taxes payable

(1,372)

1,033

Other liabilities

11,455

3,619

Net cash provided by operating activities

86,003

170,031

Cash flows from investing activities:

Purchases of property, plant and equipment

(67,911)

(42,725)

Proceeds from sale of property and equipment, including insurance proceeds

344

7,577

Divestiture of subsidiaries

3,355

—

Acquisition of business, net of cash acquired

—

(355,155)

Net cash used in investing activities

(64,212)

(390,303)

Cash flows from financing activities:

Proceeds from bank borrowings

4,655

394,682

Proceeds from issuance of common stock

667

193,106

Payments on bank borrowings

(27,820)

(93,909)

Payments of debt issuance costs

(659)

(8,899)

Employees' taxes paid upon vesting of restricted stock units

(3,796)

(7,013)

Others

(253)

(128)

Net cash provided by (used in) financing activities

(27,206)

477,839

Effect of exchange rate changes on cash and cash equivalents

(7,534)

(861)

Net increase (decrease) in cash and cash equivalents

(12,949)

256,706

Cash and cash equivalents at beginning of period

466,455

200,274

Cash and cash equivalents at end of period

$

453,506

$

456,980

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 30, 2022

September 30, 2022

Products

Services

Consolidated

Products

Services

Consolidated

Revenues

$

556,282

$

78,724

$

635,006

$

556,282

$

78,724

$

635,006

Gross profit

$

96,960

$

27,433

$

124,393

$

101,644

$

29,084

$

130,728

Gross margin

17.4 %

34.8 %

19.6 %

18.3 %

36.9 %

20.6 %

Income from operations

$

26,757

$

9,519

$

36,276

$

59,903

$

14,312

$

74,215

Operating margin

4.8 %

12.1 %

5.7 %

10.8 %

18.2 %

11.7 %

Three Months Ended

September 30, 2022

Products

Services

Consolidated

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

Reported gross profit on a GAAP basis

$

96,960

$

27,433

$

124,393

Amortization of intangible assets (1)

483

1,022

1,505

Stock-based compensation expense (2)

176

—

176

Restructuring charges (3)

—

629

629

VAT settlement (4)

4,025

—

4,025

Non-GAAP gross profit

$

101,644

$

29,084

$

130,728

Reconciliation of GAAP Gross margin to Non-GAAP Gross margin

Reported gross margin on a GAAP basis

17.4 %

34.8 %

19.6 %

Amortization of intangible assets (1)

0.1 %

1.3 %

0.2 %

Stock-based compensation expense (2)

0.1 %

—

0.1 %

Restructuring charges (3)

—

0.8 %

0.1 %

VAT settlement (4)

0.7 %

—

0.6 %

Non-GAAP gross margin

18.3 %

36.9 %

20.6 %

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

Reported income (loss)  from operations on a GAAP basis

$

26,757

$

9,519

$

36,276

Amortization of intangible assets (1)

3,747

3,647

7,394

Stock-based compensation expense (2)

4,328

483

4,811

Restructuring charges (3)

—

663

663

VAT settlement (4)

4,025

—

4,025

Acquisition related costs (5)

250

—

250

Net loss on divestitures (6)

20,796

—

20,796

Non-GAAP income from operations

$

59,903

$

14,312

$

74,215

Reconciliation of GAAP Operating margin to Non-GAAP Operating margin

Reported operating margin on a GAAP basis

4.8 %

12.1 %

5.7 %

Amortization of intangible assets (1)

0.7 %

4.6 %

1.2 %

Stock-based compensation expense (2)

0.8 %

0.6 %

0.8 %

Restructuring charges (3)

—

0.9 %

0.1 %

VAT settlement (4)

0.7 %

—

0.6 %

Acquisition related costs (5)

0.1 %

—

0.0 %

Net loss on divestitures (6)

3.7 %

—

3.3 %

Non-GAAP operating margin

10.8 %

18.2 %

11.7 %

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 impact of value added tax ruling

5    Represents acquisition activity costs

6    Represents the net loss on the divestiture of certain non-core subsidiary entities

ULTRA CLEAN HOLDINGS, INC.

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

Three Months Ended

September 30,

September 24,

July 1,

2022

2021

2022

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

Reported net income (loss)  attributable to UCT on a GAAP basis

$

9,735

$

31,880

$

(25,093)

Amortization of intangible assets (1)

7,394

9,512

7,666

Stock-based compensation expense (2)

4,811

4,324

4,385

Restructuring charges (3)

663

1,580

1,134

VAT settlement (4)

4,025

—

—

Acquisition related costs (5)

250

105

160

Net loss on divestitures (6)

20,796

—

56,642

Covid-19 related costs (7)

—

—

2,914

Fair value related adjustments (8)

—

2,288

—

Income tax effect of non-GAAP adjustments (9)

(6,791)

(2,760)

(11,081)

Income tax effect of valuation allowance (10)

7,667

1,828

10,688

Non-GAAP net income attributable to UCT

$

48,550

$

48,757

$

47,415

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

Reported income (loss) from operations on a GAAP basis

$

36,276

$

50,584

$

(5,511)

Amortization of intangible assets (1)

7,394

9,512

7,666

Stock-based compensation expense (2)

4,811

4,324

4,385

Restructuring charges (3)

663

1,580

1,134

VAT settlement (4)

4,025

—

—

Acquisition related costs (5)

250

105

160

Net loss on divestitures (6)

20,796

—

56,642

Covid-19 related costs (7)

—

—

2,914

Fair value related adjustments (8)

—

2,388

—

Non-GAAP income from operations

$

74,215

$

68,493

$

67,390

Reconciliation of GAAP Operating margin to Non-GAAP Operating margin

Reported operating margin on a GAAP basis

5.7 %

9.1 %

-0.9 %

Amortization of intangible assets (1)

1.2 %

1.7 %

1.3 %

Stock-based compensation expense (2)

0.8 %

0.8 %

0.7 %

Restructuring charges (3)

0.1 %

0.4 %

0.2 %

VAT settlement (4)

0.6 %

—

—

Acquisition related costs (5)

0.0 %

—

—

Net loss on divestitures (6)

3.3 %

—

9.3 %

Covid-19 related costs (7)

—

—

0.5 %

Fair value related adjustments (8)

—

0.4 %

—

Non-GAAP operating margin

11.7 %

12.4 %

11.1 %

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

Reported gross profit on a GAAP basis

$

124,393

$

114,070

$

118,367

Amortization of intangible assets (1)

1,505

1,680

1,625

Stock-based compensation expense (2)

176

534

405

Restructuring charges (3)

629

684

—

VAT settlement (4)

4,025

—

—

Covid-19 related costs (7)

—

—

2,914

Fair value related adjustments (8)

—

2,388

—

Non-GAAP gross profit

$

130,728

$

119,356

$

123,311

Reconciliation of GAAP Gross margin to Non-GAAP Gross margin

Reported gross margin on a GAAP basis

19.6 %

20.6 %

19.4 %

Amortization of intangible assets (1)

0.2 %

0.3 %

0.3 %

Stock-based compensation expense (2)

0.1 %

0.1 %

0.1 %

Restructuring charges (3)

0.1 %

0.2 %

—

VAT settlement (4)

0.6 %

—

—

Covid-19 related costs (7)

—

—

0.5 %

Fair value related adjustments (8)

—

0.4 %

—

Non-GAAP gross margin

20.6 %

21.6 %

20.3 %

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

$

(11,213)

$

(8,233)

$

(7,517)

Fair value related adjustments (8)

—

(100)

—

Non-GAAP interest and other income (expense)

$

(11,213)

$

(8,333)

$

(7,517)

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

Reported net income (loss) on a GAAP basis

$

0.21

$

0.70

$

(0.56)

Amortization of intangible assets (1)

0.16

0.21

0.17

Stock-based compensation expense (2)

0.10

0.10

0.10

Restructuring charges (3)

0.01

0.03

0.03

VAT settlement (4)

0.09

—

—

Acquisition related costs (5)

0.01

—

0.01

Net loss on divestitures (6)

0.46

—

1.24

Covid-19 related costs (7)

—

—

0.06

Fair value related adjustments (8)

—

0.05

—

Income tax effect of non-GAAP adjustments (9)

(0.15)

(0.06)

(0.24)

Income tax effect of valuation allowance (10)

0.17

0.04

0.23

Non-GAAP net income

$

1.06

$

1.07

$

1.04

Weighted average number of diluted shares (thousands) on a
non-GAAP basis

45,640

45,404

45,637

ULTRA CLEAN HOLDINGS, INC.

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

Three Months Ended

September 30,

September 24,

July 1,

2022

2021

2022

(in thousands, except percentages)

Provision for income taxes on a GAAP basis

$

12,154

$

8,392

$

8,708

Income tax effect of non-GAAP adjustments (9)

6,791

2,760

11,081

Income tax effect of valuation allowance (10)

(7,667)

(1,828)

(10,688)

Non-GAAP provision for income taxes

$

11,278

$

9,324

$

9,101

Income (loss) before income taxes on a GAAP basis

$

25,063

$

42,351

$

(13,028)

Amortization of intangible assets (1)

7,394

9,512

7,666

Stock-based compensation expense (2)

4,811

4,324

4,385

Restructuring charges (3)

663

1,580

1,134

VAT settlement (4)

4,025

—

—

Acquisition related costs (5)

250

105

160

Net loss on divestitures (6)

20,796

—

56,642

Covid-19 related costs (7)

—

—

2,914

Fair value related adjustments (8)

—

2,288

—

Non-GAAP income before income taxes

$

63,002

$

60,160

$

59,873

Effective income tax rate on a GAAP basis

48.5 %

19.8 %

-66.8 %

Non-GAAP effective income tax rate

17.9 %

15.5 %

15.2 %

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 impact of value added tax ruling

5    Represents acquisition activity costs

6    Represents the net loss on the divestiture of certain non-core subsidiary entities

7    Covid-19 related costs incurred during the period

8    Adjustments related to the fair values of inventories related to Fluid Solutions and purchase obligation related to Services

9    Tax effect of items (1) through (8) above based on the non-GAAP tax rate

10    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