Ultra Clean Holdings Inc

Previous wording

Ultra Clean Holdings, Inc., (“UCT”, the “Company” or “We”) is a leading developer and supplier of critical subsystems, components, parts, and ultra-high purity cleaning and analytical services primarily for the semiconductor industry. UCT offers its customers an integrated outsourced solution for major subassemblies, improved design-to-delivery cycle times, design for manufacturability, prototyping and part and component manufacturing, as well as tool chamber parts cleaning and coating, and micro-contamination analytical services. We report results for two operating segments: Products and Services. Our Products segment primarily designs, engineers and manufactures production tools, components and parts, and modules and subsystems for the semiconductor and display capital equipment markets. Products include chemical delivery modules, frame assemblies, gas delivery systems, fluid delivery systems, precision robotics, process modules as well as other high-level assemblies. Our Services segment provides ultra-high purity parts cleaning, process tool part recoating, surface encapsulation and high sensitivity micro contamination analysis primarily for the semiconductor device makers and wafer fabrication equipment (“WFE”) markets.

Current wording

Ultra Clean Holdings, Inc., (“UCT”, the “Company” or “We”) is a leading developer and supplier of critical subsystems, components, parts, and ultra-high purity cleaning and analytical services primarily for the semiconductor industry. UCT offers its customers an integrated outsourced solution for major subassemblies, improved design-to-delivery cycle times, design for manufacturability, prototyping and part and component manufacturing, as well as tool chamber parts cleaning and coating, and micro-contamination analytical services. We report results for two segments: Products and Services. Our Products segment primarily designs, engineers and manufactures production tools, components and parts, and modules and subsystems for the semiconductor and display capital equipment markets. Products include chemical delivery modules, frame assemblies, gas delivery systems, fluid delivery systems, precision robotics, process modules as well as other high-level assemblies. Our Services segment provides ultra-high purity parts cleaning, process tool part recoating, surface encapsulation and high sensitivity micro contamination analysis primarily for the semiconductor device makers and wafer fabrication equipment (“WFE”) markets.

Previous wording

Discussion of Results of Operations for the Three months ended March 29, 2024 compared to the Three months ended March 31, 2023

Current wording

Discussion of Results of Operations for the Three and Six months ended June 28, 2024 compared to the Three and Six months ended June 30, 2023

Previous wording

Products revenues increased $49.9 million from the three months ended March 31, 2023 to the three months ended March 29, 2024. The increase in Products revenues was primarily due to an increase in customer demand, along with an overall market improvement in the semiconductor industry and in part due to the acquisition of HIS in October 2023.

Current wording

For the three and six months ended June 28, 2024, Products revenues increased compared to the same periods in the prior year. The increase in Products revenues was primarily due to an increase in customer demand, along with an overall market improvement in the semiconductor industry and in part due to the acquisition of HIS in October 2023.

Previous wording

Services revenues decreased $5.5 million from the three months ended March 31, 2023 to the three months ended March 29, 2024 , primarily due to decrease in demand across its customer base.

Current wording

Services revenues increased $4.4 million from the three months ended June 30, 2023 to the three months ended June 28, 2024 primarily due to increase in demand across its customer base. Services revenues decreased $1.0 million from the six months ended June 30, 2023 to the six months ended June 28, 2024 primarily due to lower memory demand.

Previous wording

For the three months period ended March 29, 2024, U.S. revenues increased $7.2 million, compared to the same period in the prior year, primarily as a result of the acquisition of HIS in October 2023, whose customers are primarily U.S. based.

Current wording

For the three and six months ended June 28, 2024, U.S. revenues increased compared to the same periods in the prior year, primarily as the result of the October 2023 acquisition of HIS, whose customers are primarily U.S. based.

Previous wording

International revenues increased $37.2 million in the three months period ended March 29, 2024, compared to the same period in the prior year, primarily as a result of market improvement driving higher customer demand.

Current wording

International revenues increased in the three and six months ended June 28, 2024 compared to the same periods in the prior year primarily as a result of market improvement driving higher customer demand.

Previous wording

Cost of Products revenues consists of purchased materials, direct labor and manufacturing overhead. Cost of Products revenues increased $38.9 million for the three months ended March 29, 2024 compared to the same period in the prior year. The increase was due to higher sales volumes driving increased material costs of $38.3 million.

Current wording

Cost of Products revenues consists of purchased materials, direct labor and manufacturing overhead. Cost of Products revenues increased $72.8 million and $111.8 million for the three and six months ended June 28, 2024 compared to the same periods in the prior year. The increase was due to higher sales volumes driving increased material costs of $63.6 million and $101.9 million for the three and six months ended June 28, 2024, respectively.

Previous wording

Cost of Services revenues consists of direct labor, overhead and materials (such as chemicals, gases and consumables). Cost of Services revenues decreased $4.1 million for the three months ended March 29, 2024, respectively, compared to the same periods in the prior year, driven by lower volumes of service orders, resulting in decreased labor related costs (the largest component of Cost of Services) of $3.1 million.

Current wording

Cost of Services revenues consists of direct labor, overhead and materials (such as chemicals, gases and consumables). Cost of Services revenues increased $1.4 million for the three months ended June 28, 2024 compared to the same period in the prior year driven by higher volumes of service orders, resulting in increased overhead costs of $1.4 million. Cost of Services revenues decreased $2.7 million for the six months ended June 28, 2024 compared to the same period in the prior year driven by lower volumes of service orders resulting in decreased labor related costs of $3.7 million.

Previous wording

Products gross profit and gross margin increased for the three months ended March 29, 2024, compared to the same period in the prior year, primarily due to higher revenue levels, product shift and volume shift from high to low cost regions.

Current wording

Products gross profit and gross margin increased for the three and six months ended June 28, 2024 compared to the same periods in the prior year primarily due to higher revenue levels, product shift and volume shift from higher to lower cost regions.

Previous wording

Operating profit and operating margin of Products increased for the three months period ended March 29, 2024, compared to the same period in the prior year, primarily due to increases in business volumes and customer demands offset partially

Current wording

Operating profit and operating margin of Products increased for the three and six months period ended June 28, 2024 compared to the same periods in the prior year primarily due to increases in business volumes and customer demand partially offset by an increase in share-based compensation expense and by an increase in the amortization of intangibles in conjunction with the acquisition of HIS.

Previous wording

Operating profit and operating margin of Services decreased for the three months period ended March 29, 2024, compared to the same period in the prior year, primarily due to the lower gross profit resulting from reduced customer demand.

Current wording

Operating profit and operating margin of Services increased for the three and six months period ended June 28, 2024 compared to the same periods in the prior year primarily due to the higher gross profit resulting from increased customer demand.

Previous wording

Research and development expenses were consistent in the three months ended March 29, 2024, compared to the same period in the prior year.

Current wording

Research and development expenses were consistent in the three and six months ended June 28, 2024 compared to the same periods in the prior year.

Previous wording

Sales and marketing expenses were consistent in the three months ended March 29, 2024, compared to the same period in the prior year.

Current wording

Sales and marketing expenses increased for the three and six months period ended June 28, 2024 compared to the same periods in the prior year primarily due to the increase in employee related expenses.

Previous wording

General and administrative expenses increased $4.2 millionin the three months ended March 29, 2024, compared to the same period in the prior year, primarily driven by increases in amortization of intangible assets acquired through business combinations and in restructuring costs in addition to a combination of other factors, none of which were individually significant. The restructuring costs primarily reflect employee severance costs and facilities consolidation costs to improve efficiencies in our operational activities and to reduce redundancies.

Current wording

General and administrative expenses increased $8.1 million and $12.3 million in the three and six months ended June 28, 2024 compared to the same periods in the prior year primarily driven by increases in amortization of intangible assets acquired through business combinations and in share-based compensation expense in addition to a combination of other factors, none of which were individually significant.

Previous wording

Interest income increased $0.9 million in the three months ended March 29, 2024 compared to the same period in the prior year, primarily due to higher interest income earned on cash and cash equivalent balances attributed to higher interest rates in the current period.

Current wording

Interest income increased $0.6 million and $1.5 million in the three and six months ended June 28, 2024 compared to the same periods in the prior year primarily due to higher interest income earned on cash and cash equivalent balances attributed to higher interest rates in the current period.

Previous wording

The increase in the effective tax rate for the three months ended March 29, 2024 compared to the same period in the prior year is primarily attributable to changes in the geographic mix of worldwide earnings and financial results in jurisdictions which are taxed at different rates and the impact of losses in jurisdictions with full federal and state valuation allowances. The increase also reflects the impact of the expiration of a reduced tax rate incentive on a portion of our earnings in certain international subsidiaries and thus we are applying the local corporate statutory tax rate on those earnings. We are in the process of renewing the international tax incentive; when renewed will make an adjustment to its effective tax rate in that period.

Current wording

The decrease in the effective tax rate for the three and six months ended June 28, 2024 compared to the same periods in the prior year is primarily attributable to changes in the geographic mix of worldwide earnings and financial results in jurisdictions which are taxed at different rates and the impact of losses in jurisdictions with full valuation allowances on deferred tax assets.

Previous wording

Company management continuously evaluates the need for a valuation allowance on its deferred tax assets and, as of March 29, 2024, concluded that a full valuation allowance on its federal, state and certain of its foreign deferred tax assets remained appropriate.

Current wording

Company management continuously evaluates the need for a valuation allowance on its deferred tax assets and, as of June 28, 2024, concluded that a full valuation allowance on its U.S. federal, state and certain of its foreign deferred tax assets remained appropriate.

Previous wording

•For the three months ended March 29, 2024, we generated cash from operating activities of $9.8 million compared to $28.0 million for the three months ended March 31, 2023. The $18.2 million decrease in net cash from operating activities was driven by a $16.4 million unfavorable change in net working capital and by a $7.6 million decrease in net income offset in part by a $5.8 million increase from non-cash items included in net income.

Current wording

•For the six months ended June 28, 2024, we generated cash from operating activities of $33.0 million compared to $64.4 million for the six months ended June 30, 2023. The $31.4 million decrease in net cash provided by operating activities was driven by a $43.3 million unfavorable change in net working capital and by a $10.1 million decrease in non-cash items included in net income offset in part by an increase in net income of $22.0 million.

Previous wording

•The major contributors in net changes in operating assets and liabilities for the three months ended March 29, 2024 were as follows:

Current wording

•The major contributors in net changes in operating assets and liabilities for the six months ended June 28, 2024 were as follows:

Previous wording

◦Accounts receivable increased $13.7 million primarily due to the timing of shipments and collections and $13.6 million increase in inventories due to increased production levels.

Current wording

◦Accounts receivable increased $26.1 million primarily due to the timing of shipments and collections and $25.4 million increase in inventories due to increased production levels.

Previous wording

◦Accounts payable increased $25.1 million, income taxes payable increased $2.1 million, and accrued compensation and related benefits decreased $10.6 million, primarily due to the timing of payments.

Current wording

◦Accounts payable increased $41.4 million, income taxes payable increased $1.4 million, and accrued compensation and related benefits increased $1.5 million, primarily due to the timing of payments.

Previous wording

•Net cash used in investing activities during the three months ended March 29, 2024 and March 31, 2023 consisted primarily of $18.0 million and $27.3 million purchases of property, plant and equipment, respectively.

Current wording

•Net cash used in investing activities during the six months ended June 28, 2024 and June 30, 2023 consisted primarily of $31.0 million and $47.0 million purchases of property, plant and equipment, respectively.

Previous wording

•During the three months ended March 29, 2024, cash used in financing activities was $4.5 million, compared to cash used in financing activities of $36.2 million in the three months ended March 31, 2023. When compared to

Current wording

•During the six months ended June 28, 2024, the cash provided in financing activities was $12.5 million compared to cash used in financing activities of $56.9 million in the six months ended June 30, 2023. The $69.4 million increase in net cash provided by financing activities is due to the $23.5 million net cash proceeds from the amended credit agreement, a decrease of $23.8 million in principal payments on bank borrowings, and a $23.7 million decrease in share repurchases offset partially by the additional $2.5 million payment of debt issuance costs.

Previous wording

We believe we have sufficient capital to fund our working capital needs, satisfy our debt obligations, maintain our existing capital equipment, purchase new capital equipment and make strategic acquisitions from time to time. As of March 29, 2024, we had cash and cash equivalents of $293.0 million compared to $307.0 million as of December 29, 2023. Our cash and cash equivalents, cash generated from operations, and amounts available under our revolving line of credit described below were our principal sources of liquidity as of March 29, 2024.

Current wording

We believe we have sufficient capital to fund our working capital needs, satisfy our debt obligations, maintain our existing capital equipment, purchase new capital equipment and make strategic acquisitions from time to time. As of June 28, 2024, we had cash and cash equivalents of $319.5 million compared to $307.0 million as of December 29, 2023. Our cash and cash equivalents, cash generated from operations, and amounts available under our revolving line of credit described below were our principal sources of liquidity as of June 28, 2024.

Previous wording

As of March 29, 2024, we have cash of approximately $204.0 million in our foreign subsidiaries. It is not practicable to determine the tax liability that might be incurred if the undistributed earnings of these foreign subsidiaries were to be distributed. For undistributed earnings of foreign subsidiaries which are not considered indefinitely reinvested, deferred taxes have been accrued.

Current wording

As of June 28, 2024, we have cash of approximately $244.0 million in our foreign subsidiaries. It is not practicable to determine the tax liability that might be incurred if the undistributed earnings of these foreign subsidiaries were to be distributed. For undistributed earnings of foreign subsidiaries which are not considered indefinitely reinvested, deferred taxes have been accrued.

Previous wording

At March 29, 2024, the Company had an outstanding amount under the Term Loan of $475.4 million, gross of unamortized debt issuance costs of $5.5 million. As of March 29, 2024, the interest rate on the outstanding Term Loan was 9.2%.

Current wording

At June 28, 2024, the Company had an outstanding amount under the Term Loan of $496.9 million, gross of unamortized debt issuance costs of $8.3 million. As of June 28, 2024, the interest rate on the outstanding Term Loan was 9.0%.

Previous wording

The Company has a credit agreement with a local bank in the Czech Republic that provides for a revolving credit facility in the aggregate of up to 7.0 million euros (approximately 7.6 million). As of March 29, 2024, no debt was outstanding under this revolving credit facility.

Current wording

The Company has a credit agreement with a local bank in the Czech Republic that provides for a revolving credit facility in the aggregate of up to 7.0 million euros (approximately 7.5 million). As of June 28, 2024, no debt was outstanding under this revolving credit facility.

Previous wording

Fluid Solutions has credit facilities with various financial institutions in Israel that provides borrowings of up to $11.0 million. As of March 29, 2024, Fluid Solutions had $5.3 million of outstanding debt with average interest rate ranges from 7.6% to 7.8%.

Current wording

Fluid Solutions has credit facilities with various financial institutions in Israel that provides borrowings of up to $11.0 million. As of June 28, 2024, Fluid Solutions had $6.0 million of outstanding debt with average interest rate ranges from 7.5% to 7.8%.

Previous wording

As of March 29, 2024, the Company’s total bank debt was $475.2 million, net of unamortized debt issuance costs of $5.5 million. As of March 29, 2024, the Company had $146.1 million, $5.7 million and $7.6 million available to draw from our credit facilities in the U.S., Israel and Czech Republic, respectively.

Current wording

As of June 28, 2024, the Company’s total bank debt was $494.6 million, net of unamortized debt issuance costs of $8.3 million. As of June 28, 2024, the Company had $146.1 million, $5.0 million and $7.5 million available to draw from our credit facilities in the U.S., Israel and Czech Republic, respectively.

Previous wording

Capital expenditures were $18.0 million during the three months ended March 29, 2024 and were primarily attributable to the capital invested in our manufacturing facilities worldwide as well as costs associated with the ongoing design and implementation of our new enterprise resource planning system. The Company’s anticipated capital expenditures for the remainder of 2024 are expected to be financed primarily from our cash flow generated from operations and cash on hand.

Current wording

Capital expenditures were $31.0 million during the six months ended June 28, 2024 and were primarily attributable to the capital invested in our manufacturing facilities worldwide. The Company’s anticipated capital expenditures for the remainder of 2024 are expected to be financed primarily from our cash flow generated from operations and cash on hand.

Previous wording

The Company had commitments to various third parties to purchase inventories totaling approximately $364.8 million as of March 29, 2024.

Current wording

The Company had commitments to various third parties to purchase inventories totaling approximately $497.8 million as of June 28, 2024.