Ultra Clean Holdings Inc

Previous wording

Over the long term, we believe the semiconductor market we serve will continue to grow due to multi-year industry demand from a broad range of drivers, such as new processor architectures that enable higher performance servers necessary for cloud, artificial intelligence (“AI”) and machine learning applications. We also believe that semiconductor original equipment manufacturers (“OEM”) are increasingly relying on partners like UCT to fulfill their expanding capacity requirements. Additionally, our Services business is benefiting as device manufacturers rely on precision cleaning and coating to achieve ever more advanced devices.

Current wording

Over the long term, we believe the semiconductor market we serve will continue to grow due to multi-year industry demand from a broad range of drivers, such as new process architecture (e.g. gate all around) and memory devices (e.g. high bandwidth memory) necessary for cloud, artificial intelligence (“AI”) and machine learning (“ML”) applications. We also believe that semiconductor original equipment manufacturers (“OEM”) are increasingly relying on partners like UCT to fulfill their expanding capacity requirements. Additionally, our Services business is benefiting as device manufacturers rely on precision cleaning and coating to achieve ever more advanced devices.

Previous 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

Current wording

Discussion of Results of Operations for the Three and Nine months ended September 27, 2024 compared to the Three and Nine months ended September 29, 2023

Previous 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.

Current wording

For the three and nine months ended September 27, 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 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.

Current wording

Services revenues increased for three and nine months ended September 29, 2023 compared to the same periods in the prior year primarily due to increase in demand across its customer base.

Previous 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.

Current wording

For the three and nine months ended September 27, 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 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.

Current wording

International revenues increased in the three and nine months ended September 27, 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 $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.

Current wording

Cost of Products revenues consists of purchased materials, direct labor and manufacturing overhead. Cost of Products revenues increased $74.0 million and $185.7 million for the three and nine months ended September 27, 2024 compared to the same periods in the prior year. The increase was due to higher sales volumes driving increased material costs of $64.5 million and $166.4 million for the three and nine months ended September 27, 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 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.

Current wording

Services Cost of revenues consists of direct labor, overhead and materials (such as chemicals, gases and consumables). Services Cost of revenues increased $3.2 million for the three months ended September 27, 2024 compared to the same period in the prior year driven by higher volumes of service orders, resulting in increased material cost and overhead cost $1.3 million and $1.4 million, respectively. There was no significant change in Services Cost of revenues for the nine months ended September 27, 2024 compared to the same period in the prior year due to labor efficiencies offset by higher materials and overhead costs on higher sales.

Previous 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.

Current wording

Products gross profit and gross margin increased for the three and nine months ended September 27, 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

Services gross profit 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.

Current wording

Services gross profit increased for the three and nine months ended September 27, 2024 compared to the same periods in the prior year primarily due to higher revenue levels.

Previous 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.

Current wording

Operating profit and operating margin of Products increased for the three and nine months period ended September 27, 2024 compared to the same periods in the prior year primarily due to increases in business volumes and customer demand partially offset by increases in share-based compensation expense, in outside service spending, and in the amortization of intangibles in conjunction with the acquisition of HIS.

Previous 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.

Current wording

Operating profit and operating margin of Services increased for the three and nine months period ended September 27, 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 and six months ended June 28, 2024 compared to the same periods in the prior year.

Current wording

Research and development expenses were consistent in the three and nine months ended September 27, 2024 compared to the same periods in the prior year.

Previous 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.

Current wording

Sales and marketing expenses increased for the three and nine months period ended September 27, 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 $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.

Current wording

General and administrative expenses increased $7.4 million and $19.8 million in the three and nine months ended September 27, 2024 compared to the same periods in the prior year primarily driven by increases in amortization of intangible assets acquired through business combinations, in outside service spending 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 $0.6 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.

Current wording

Interest income increased $1.4 million in the nine months ended September 27, 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.

Previous wording

Interest expense was consistent in the three and six months ended June 28, 2024 compared to the same periods in the prior year.

Current wording

Interest expense was consistent in the three and nine months ended September 27, 2024 compared to the same periods in the prior year.

Previous wording

Other income (expense), net, increased $18.9 million in the three months ended June 28, 2024 compared to the same period in the prior year primarily due to the gain from the change in the fair value of contingent earn-out of $24.1 million offset partially by the $3.6 million of debt financing costs incurred in conjunction with the amended credit agreement. Other income (expense), net, increased $12.2 million in the six months ended June 28, 2024 compared to the same period in the prior year primarily due to the gain from the change in the fair value of contingent earn-out of $22.8 million offset partially by the $3.6 million of debt financing costs and by the $7.5 million unfavorable foreign exchange transactions and remeasurements.

Current wording

Other expense, net, increased $2.0 million in the three months ended September 27, 2024 compared to the same period in the prior year primarily due to a loss from the change in the fair value of contingent earn-out of $0.8 million and by $1.3 million of unfavorable foreign exchange transactions and remeasurements. Other income, net, increased $10.1 million in the nine months ended September 27, 2024 compared to the same period in the prior year primarily due to the gain from the change in a fair value of contingent earn-out of $22.0 million offset partially by the $3.6 million of debt financing costs and by the $8.7 million unfavorable foreign exchange transactions and remeasurements.

Previous 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.

Current wording

The increase in the effective tax rate for the three and nine months ended September 27, 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. The negative tax rates in the three and nine months ended September 29, 2023 were the result of pre-tax losses in those periods compared to pre-tax profits in the comparable periods ended September 27, 2024.

Previous 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.

Current wording

•For the nine months ended September 27, 2024, we generated cash from operating activities of $47.9 million compared to $100.6 million for the nine months ended September 29, 2023. The $52.7 million decrease in net cash provided by operating activities was driven by a $83.1 million unfavorable change in net working capital and by a $4.7 million decrease in non-cash items included in net income offset in part by an increase in net income of $35.1 million.

Previous wording

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

Current wording

•The major contributors in net changes in operating assets and liabilities for the nine months ended September 27, 2024 were as follows:

Previous 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.

Current wording

◦Accounts receivable increased $47.3 million primarily due to the timing of shipments and collections and $28.1 million increase in inventories due to increased production levels.

Previous 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.

Current wording

◦Accounts payable increased $46.1 million, income taxes payable increased $1.4 million, and accrued compensation and related benefits increased $0.2 million, primarily due to the timing of payments.

Previous 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.

Current wording

•Net cash used in investing activities during the nine months ended September 27, 2024 and September 29, 2023 consisted primarily of $46.2 million and $59.2 million purchases of property, plant and equipment, respectively.

Previous 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.

Current wording

•During the nine months ended September 27, 2024, the cash provided in financing activities was $8.8 million compared to cash used in financing activities of $61.0 million in the nine months ended September 29, 2023. The $69.8 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 $24.6 million in principal payments on bank borrowings, and a $23.7 million decrease in share repurchases offset partially by the additional $2.2 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 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.

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 September 27, 2024, we had cash and cash equivalents of $318.2 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 September 27, 2024.

Previous wording

Fluid Solutions has an existing factoring arrangement with a financial institution in which a portion of its accounts receivable are sold on a non-recourse basis. As of June 28, 2024, Fluid Solutions factored $6.9 million under this arrangement.

Current wording

Fluid Solutions has an existing factoring arrangement with a financial institution in which a portion of its accounts receivable are sold on a non-recourse basis. As of September 27, 2024, Fluid Solutions factored $7.6 million under this arrangement.

Previous 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.

Current wording

As of September 27, 2024, we have cash of approximately $278.3 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 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%.

Current wording

At September 27, 2024, the Company had an outstanding amount under the Term Loan of $493.8 million, gross of unamortized debt issuance costs of $7.7 million. As of September 27, 2024, the interest rate on the outstanding Term Loan was 8.9%.

Previous wording

As of June 28, 2024, the Company had $146.1 million, net of $3.9 million of outstanding letters of credit, available under this revolving credit facility. As of June 28, 2024, the Company was in compliance with the financial covenants contained within the Amended Credit Agreement.

Current wording

As of September 27, 2024, the Company had $146.0 million, net of $4.0 million of outstanding letters of credit, available under this revolving credit facility. As of September 27, 2024, the Company was in compliance with the financial covenants contained within the Amended Credit Agreement.

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 7.5 million). As of June 28, 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 $7.8 million). As of September 27, 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 June 28, 2024, Fluid Solutions had $6.0 million of outstanding debt with average interest rate ranges from 7.5% 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 September 27, 2024, Fluid Solutions had $6.1 million of outstanding debt with interest rate of 7.1%.

Previous 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.

Current wording

As of September 27, 2024, the Company’s total bank debt was $492.2 million, net of unamortized debt issuance costs of $7.7 million. As of September 27, 2024, the Company had $146.0 million, $4.9 million and $7.8 million available to draw from our credit facilities in the U.S., Israel and Czech Republic, respectively.

Previous 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.

Current wording

Capital expenditures were $46.2 million during the nine months ended September 27, 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 $497.8 million as of June 28, 2024.

Current wording

The Company had commitments to various third parties to purchase inventories totaling approximately $495.7 million as of September 27, 2024.