Ultra Clean Holdings Fourth Quarter 2025 Earnings Call - Positioned for AI-driven WFE expansion and ready to scale to $4B

Operator: Good afternoon, ladies and gentlemen, and welcome to the Ultra Clean Holdings fourth quarter 2025 financial results conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded on Monday, February 23, 2026. I would now like to turn the conference over to Rhonda Bennetto, Investor Relations. Please go ahead.

Rhonda Bennetto, Investor Relations, Ultra Clean Holdings: Thank you, operator. Good afternoon, everyone, and thank you for joining us. With me today are James Xiao, CEO, Sheri Savage, CFO, and Cheryl Knepfler, VP Marketing. James will begin with some prepared remarks about the industry and highlight some of the opportunities ahead for UCT. Sheri will follow with the financial review, and 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.

With that, I would like to turn the call over to James. James, please go ahead.

James Xiao, Chief Executive Officer, Ultra Clean Holdings: Thank you, Rhonda. Good afternoon, everyone, and thank you for joining us. This is my first solo earnings call as CEO. As I approach nearly 6 months in the role, I remain very energized by the opportunity ahead of us. We’ve spent a significant time across our global sites, meeting with employees, customers, and partners, and have developed an even deeper conviction in the strength of our team, our strategic position, and have refined our long-term growth strategy and vision, which I now call UCT 3.0. I want to thank our employees worldwide for their focus, resilience, and commitment to operational execution during this transition.

Their dedication to our customers and to continuous innovation and improvement is fundamental to our performance, and it positions us well as we enter a new phase of AI technology-driven industrial growth, where speed, scale, and execution will become defining advantages for long-term winners like UCT. As you have heard recently from our customers and their customers, we’re no longer preparing for a semiconductor recovery. We’re entering a structural expansion of wafer fab equipment driven by AI infrastructure and physical AI demand. The long-term outlook for the semiconductor market remains very strong. Industry projections now suggest the market could reach $1 trillion in annual revenue of semiconductors by 2027, possibly earlier, which is significantly ahead of prior expectations. What we are witnessing is not a normal cyclical upturn, it is an AI technology inflection.

The center of gravity has shifted from consumer electronics to AI infrastructure, Physical AI, autonomous driving, and other AI applications. The evolving AI roadmap, from Generative AI to Physical AI and Agentic AI, and ultimately artificial general intelligence, or AGI, is driving greater end customer confidence and accelerating investment in AI infrastructure. Stakeholders across the AI ecosystem are investing to support growing AI end market demand. Rising device complexity is accelerating wafer fab equipment spending as leading-edge fabs deploy new materials like molybdenum and new structures such as Gate-All-Around and high-bandwidth memory. These technologies require tight integrated solutions across deposition and removal, with increased depth etch CapEx intensity, which provide a tremendous growth opportunity for UCT. All these market drivers should lead to a multi-year WFE upturn once wafer fabs address their near-term clean room constraints. Our technology co-innovation is tightly aligned to our customers’ roadmaps.

We expect to see strength around etch and deposition, especially ALD and high-precision etch, to support Gate-All-Around and backside power distribution logic transitions, as well as high-bandwidth memory, advanced packaging, and greater than 300 layer NAND in memory. This environment demands innovation, velocity, and operational agility. This is how UCT is positioned today. Will continue to evolve to win and create a sustainable, profitable growth. This strategic transformation is what we call UCT 3.0. Ramp readiness is our top priority now. We have been preparing for this moment, and this is where UCT has a distinct competitive advantage. Over the past several months, we have been focused on our business to operate with greater responsiveness and sense of urgency, efficiency, and accuracy.

Leveraging our global talent and footprint, we’re driving operational execution initiatives to ensure we grow as the partner of choice for engineering support, development, and also the manufacturing support. Through facility optimizations over the last several years, we have the capacity in place now to support approximately $3 billion in revenue today, with global utilization currently averaging 65%. Among our worldwide capacity, approximately 50% is currently in Asia, with plans to increase to 60%, which is strategically aligned to support our key customers’ global manufacturing footprint. As volumes ramp quarter-over-quarter, we will be focused on improving operating leverage and generating meaningful margin expansion. While we expect 2026 demand to be second half weighted and increase into 2027, customers are encouraging us to put position capacity ahead of that inflection.

Our largest customers are providing extended visibility, enabling us to align capacity and service infrastructure in advance of increased order activity. In parallel, we have identified and addressed product-specific supply chain and manufacturing constraints to ensure the readiness for a step function increase in orders. For UCT to support our long-term goal of a $4 billion annual run rate, only modest incremental clean room investment will be required. We do not expect infrastructure-related capacity to be a limiting factor during this cycle, provided we continue to build and retain the skilled workforce required and leverage automation and the lean capabilities to scale capacity efficiently. Having well-planned extra capacity entering a technology inflection of this magnitude is a strategic competitive advantage. This allow us to support customer roadmaps while capturing pull-in and drop-in opportunities, and responding rapidly to urgent need and frequent changes that others may struggle to support.

In addition to our ramp readiness initiatives, we’re also accelerating the design-to-production cycle, expanding our participation in high-value new product introductions at the leading-edge nodes, and strengthening strategic technology integration with our customers. A key enabler of this is our expanded NPX strategy, which is comprised of new product introduction, new product development, and new product transition. Together, they will position UCT to a co-innovate earlier, ramp faster, and manufacturing closer to customers, driving speed, responsiveness, and supply chain resilience at scale. Another important focus area is on digital transformation. By upgrading our systems, processes, and data infrastructure with AI-compatible solutions, we are further improving operational visibility, shortened cycle times, enhancing productivity, and enabling a faster response time to our customers. These digital initiatives set a solid foundation for our multi-year digital transformation, drive towards AI-enabled IT infrastructure and business processes to enhance operational agility and continuously improve productivity.

In closing, we remain focused on reaching our long-term $4 billion revenue target, expanding margins over time, and delivering durable shareholder value as a strategic co-innovator and manufacturing partner throughout the next cycle of technology inflection. We will now turn the call over to Sherry, who will summarize our fourth quarter results and update you with our first quarter guidance. I look forward to your questions following the financial summary. Thank you.

Sheri Savage, Chief Financial Officer, Ultra Clean Holdings: Thanks, James. Good afternoon, everyone. Thanks for joining us. In today’s discussion, I will be referring to non-GAAP numbers only. As James mentioned, we are entering a structural expansion of wafer fab equipment spend, driven by AI infrastructure and physical AI demand. I’ll now review our fourth quarter and full year results, as well as provide our first quarter guidance. For the fourth quarter, total revenue came in at $506.6 million, compared to $510 million in the prior quarter. Revenue from products was $442.4 million, compared to $445 million last quarter. Services revenue came in at $64.2 million in Q4, compared to $65 million in Q3. For the full year, total revenue was $2.1 billion, roughly flat with 2024 revenue.

Due to facility optimization initiatives over the last several years, we have the capacity in place now to support approximately $3 billion in revenue and are currently averaging 65% utilization. We believe that for UCT to support a $4 billion annual run rate, only modest incremental clean room investment will be required. We remain focused on aligning workforce capacity with demand, while leveraging automation and lean disciplines to drive efficient and scalable growth. Total gross margin for the fourth quarter was 16.1%, compared to 17% last quarter. Products gross margin was 14.1%, compared to 15.1% in Q3, and services was 29.7%, compared to 30% last quarter. Gross margin was impacted in Q4 due to a shift in product mix.

Total gross margin for 2025 was 16.5%, compared to 17.5% in the prior year. Margins continue to be influenced by fluctuations in volume, mix, manufacturing region, and related tariffs, as well as material and transportation costs, so there will be variances quarter to quarter. As production levels increase sequentially, we expect improved operating leverage and meaningful margin expansion. Operating expenses for the quarter was $56.6 million, compared to $57.7 million in Q3. As a percentage of revenue, operating expenses were 11.2% versus 11.3% last quarter. For the year, operating expense as a percentage of revenue was 11.2%, compared to 10.6% in the prior year.

Total operating margin for the quarter came in at 4.9%, compared to 5.7% last quarter. Margin from our products division was 3.9%, compared to 4.9%, and services margin was 12.4%, compared to 11.1% in the prior quarter. For the full year, operating margin was 5.3%, compared to 6.9% in the prior year. Fourth quarter tax rate came in at 21%, consistent with our expectations. Our mix of earnings between higher and lower tax jurisdictions can cause our rate to fluctuate throughout the year. For 2026, we expect our tax rate to stay in the low 20% range.

Based on 45.8 million shares outstanding, earnings per share for the quarter were $0.22 on net income of $10 million, compared to $0.28 on net income of $12.9 million in the prior quarter. For the full year, earnings per share was $1.05 on net income of $47.7 million, compared to $1.44 on net income of $55.2 million in 2024. Turning to the balance sheet, our cash and cash equivalents were $311.8 million, compared to $314.1 million at the end of last quarter. Cash flow from operations was $8.1 million this quarter, compared to breakeven last quarter, primarily due to working capital management.

For the full year, cash flow from operations was $65.6 million, compared to $65 million in the prior year. Looking ahead, we continue to see a strong structural backdrop for semiconductors, with industry estimates now calling for annual revenue to approximately $1 trillion by 2027, possibly earlier. We continue to execute towards our longer-term $4 billion revenue goal, with a focus on expanding margins and generating durable shareholder returns. For the first quarter of 2026, we project total revenue to be between $505 million and $545 million. We expect EPS in the range of $0.18-$0.34. With that, I’d like to turn the call over to operator for questions.

Operator: Ladies and gentlemen, we will now begin the question and answer portion of the call. If you have a question, please press star and number 1 on your touchtone phone. You will hear a beep that your hand has been raised. If you’d like to withdraw from the polling process, please press star, then number 2. Ladies and gentlemen, we will now begin the question and answer portion. If you have a question, please press star followed by number 1 on your touchtone phone. You will hear a prompt that your hand has been raised. If you would like to withdraw from the polling process, please press star, followed by number 2. If you’re using a speakerphone, please make sure to lift your handset before you press any key. Your first question comes from the line of Charles Shi from Needham. Please ask your question.

Charles Shi, Analyst, Needham: Hey, good afternoon. Thanks for taking my questions. I want to start with your overall view on WFE. Back in January, I believe you talked about probably low-to-mid teens WFE growth. I saw your presentation, there’s a 1, $25 billion-$135 billion projection in the deck, but they’re not so sure about your base numbers. Can you give us a little bit better sense of what’s your WFE forecast this year? On a related question, the Q1 guidance looks like, at least on a year-on-year basis, it’s, at the midpoint of the guidance, it’s only up a little bit. It looks like you may be predict, I mean, implying a very, very strong second half pickup.

I wonder how the shape of the year could, could, could be. Thank you.

James Xiao, Chief Executive Officer, Ultra Clean Holdings: Hi, Charles. Let me answer your questions, and I will have Sharon chime in. For- as, as what I explained to you in the Needham conference a month ago, you know, we see the forecast increase week by week. Right now, our view on the overall WFE is bigger than a month ago. We’re looking at 15%-20% year-over-year growth. In, in terms of your second question, yes, we do not see probably what you see the year-over-year, quarter-over-quarter from our customers, but we have a big bump from Q2, Q3 to Q4. If you take the average, the, the, the increase rate actually is kind of in line with our customers growth rate. Okay?

Charles Shi, Analyst, Needham: Hi, hi, James. maybe a quick clarification. You said big bump.

James Xiao, Chief Executive Officer, Ultra Clean Holdings: Mm-hmm.

Charles Shi, Analyst, Needham: Basically, you, you’re saying maybe the run rate for your revenue run rate, you see like September will be a very strong pickup from June, maybe from a strong pickup again from September to December. Is that the, is that what you what you were speaking to? Yeah. Thanks.

James Xiao, Chief Executive Officer, Ultra Clean Holdings: Yeah, I think that, you’re right. Look, look forward, we definitely see a step function, increase in the second half of 2026, and, that’s where we see the year-over-year, and we’re very optimistic about the, the whole year growth.

Charles Shi, Analyst, Needham: Thanks. May I ask a question about the gross margin? Can you provide a little bit color, March quarter, what’s the implied gross margin expectation under your revenue and EPS assumptions? Thank you.

Brian Harding, Financial Analyst/Moderator, Ultra Clean Holdings: Hey, Charles, this is Brian Harding. I’ll cover the margin question for you. Just quickly, yeah, we expect gross margins in Q1 to be roughly the same, maybe slightly up to Q4, and then sequentially up from there through the year.

Charles Shi, Analyst, Needham: Thank you.

Operator: Your next question comes from the line of Krish Sankar from TD Cowen. Please ask your question.

Krish Sankar, Analyst, TD Cowen: Yeah, thank you for taking my question. James, I have two of them. One is, if WFE is going to grow 15%-20%, is it fair to assume you could outgrow that WFE this year? Would your revenues grow sequentially every quarter, or is it really more back-half weighted that Q2 is going to be flattish? Just trying to figure out if you can outgrow WFE for Ultra Clean revenues.

James Xiao, Chief Executive Officer, Ultra Clean Holdings: Yes, I, I think that, what we look at is, you know, this year we see a really kind of, a step function growth and, of, of the WFE. We’re very confident, you know, we will kind of, in line with the WFE growth. We also see that because we have a well-planned extra capacity, that really can address $3 billion. We will capture more opportunities, leverage that extra capacity. We’re pretty confident we will be on par with WFE growth or even higher.

Krish Sankar, Analyst, TD Cowen: Would it be sequentially growing, or is it more really like Q3, Q4?

James Xiao, Chief Executive Officer, Ultra Clean Holdings: I, I think that we’ll see another growth in Q2 already, but more of that function in the second half.

Krish Sankar, Analyst, TD Cowen: Mm-hmm. Got it. Got it. Then a quick follow-up. How much was China as a % of revenues last quarter, and how do you expect that to grow, especially given that the Chinese semi-cap customers seem to be doing pretty well?

James Xiao, Chief Executive Officer, Ultra Clean Holdings: It’s a great question. I think that, as you have already heard from our customer, you know, the WFE in China is flattish in 2026. I think because of the, the worldwide WFE is growing substantially, I think the % of the China WFE will be lower. For our business, for the China OEMs, we see also kind of flattish forecast for 2026. Overall, it’s less than 7% of our overall revenue. I would not put too much of the emphasis on this.

Brian Harding, Financial Analyst/Moderator, Ultra Clean Holdings: Got it. Thank you very much.

Operator: Your next question is from the line of Edward Yang from Oppenheimer. Please ask your question.

Edward Yang, Analyst, Oppenheimer: Hi, James. Thanks for the time. Just wanted to follow up on the, the gross margin assumption for the.

James Xiao, Chief Executive Officer, Ultra Clean Holdings: Mm-hmm

Edward Yang, Analyst, Oppenheimer: ... upcoming first quarter, 2026. I think Brian mentioned that, you know, you’re expecting same or slightly up from third quarter. Just wondering, you know, what’s driving that? Why aren’t you seeing more operating leverage from that? Can you maybe talk a little bit more in detail about the mix issue that you saw in the fourth quarter?

James Xiao, Chief Executive Officer, Ultra Clean Holdings: Yeah, Ed, I, I, I’ve seen that. I, I will answer that, and now maybe Brian can chime in. I overall, I really see, as I said, you know, we’re, we’re running at 65% of the utilization rate today, and we’ll see definitely, the demand is growing quarter by quarter. By the, by the end of 2026, we definitely see much higher utilization rate that will naturally expand our margin profile. Also we’re, we’re keeping very disciplined operation cadence, so we will not grow the OPEX and IDL as the revenue grow. That will also, that discipline will also give us a, a margin expansion opportunities. Brian, maybe you want to talk more on the model standpoint.

Brian Harding, Financial Analyst/Moderator, Ultra Clean Holdings: Yeah, sure. Just looking at, you know, pre, Q3 to Q4, first off, Ed, we, we, in Q3, we did have a favorable product mix that didn’t repeat again in Q4. So, our margins do continue to fluctuate with volume and mix and manufacturing regions, as well as tariffs and material transportation costs. A number of things impact our, our margins quarter to quarter. Going forward into Q1, I did say that we expect Q4 and Q1 to be roughly in line, maybe slightly better in Q1. Then as volumes come in, as James mentioned, in Q2, three, and four, we expect sequential margin expansion in a meaningful way.

Edward Yang, Analyst, Oppenheimer: Okay. I mean, this is a tough question to answer, but, you know, obviously a lot of excitement around what’s happening in memory, and that’s a business that in the prior peak was, you know, $900 million in revenue for you. It’s, it’s down about $300 million from that peak. I would imagine that would have some significant upside as well. James, when you think about, I guess, this memory cycle, you know, what, what, what are, what’s your feeling in terms of, you know, how much longer it could go in terms of the, the strength on the upside? You know, what are the, what are the sort of parameters we should be watching out for in terms of the slope of that upcycle and the duration of that upcycle? Thank you.

James Xiao, Chief Executive Officer, Ultra Clean Holdings: Thank you. Ed, this is a great question. The thing that you hear from our customer’s customer, right? Some of them are mentioning that the shortage will last until the 2028. We see that, you know, all three of them, Micron, Samsung and SK, they are really investing on Greenfield, while they continue to convert existing fab to really come address immediate demand. We really see this as a multi-year op term for the memory segment.

Also, you look at the end market demand, HBM will compromise the nameplate, the capacity in the DRAM factories, so you almost need more WFE, you know, investment to compensate that focus on HBM capacity expansion, while they still try to address the unbalance, the demand and supply in the regular DRAM market. Also, I think that if you look at the NAND, you still see that upgrade from the 2xx to 3xx and four XX. That will continue. You heard Lam is talking about that $40 billion over multiple years of NAND upgrade capacity and investment. They, they also mentioned that they’re going to modify that model being the demand, even for the ESSD, for example, right?

I think that overall, we, we really believe this is a multi-year growth for the NAND and customer are talking about for the AI-specific memory, they see a 22% bigger, or 2-3x of CAGR compared to the regular memory market.

Edward Yang, Analyst, Oppenheimer: That’s very helpful. Thank you.

Operator: Your last question comes from the line of Christian Schwab from Craig-Hallum. Please ask your question.

Christian Schwab, Analyst, Craig-Hallum: Great. Thanks for taking my question. James, on, with the 65% utilization rate.

Christian Schwab, Analyst, Craig-Hallum: ... and your recent, you know, facility optimization over the last year and a half or 2 years, you know, how should we be thinking about it? What utilization rate, or what type of order visibility, would be required, to put, in essence, the $1 billion worth of capacity that’s available to you, above and beyond the $3 billion you have today? How should we be thinking about that?

James Xiao, Chief Executive Officer, Ultra Clean Holdings: Yeah, I think that, you know, what we see today, Kristen, is that, week by week, we see a drop in forecast. We’re very optimistic from the run rate, quarterly run rate, standpoint. We’ll fill that capacity very quickly. Especially, we’re actually shifting our focus to Asian manufacturing. You know, it’s kind of in line with our customer’s global manufacturing strategy. Very soon you will see our Asian factory will fill completely, and that will eventually represent 60% of our global capacity, and will match the customer’s manufacturing footprint. With the increasing utilization, with highly weighted Asian manufacturing, we’ll see, you know, really the positive improvement on our margin profile.

Christian Schwab, Analyst, Craig-Hallum: Great. Then on the, on the margin profile, understanding, you know, utilization rates having an impact, but as, as your customers then begin to, especially in memory, materially increase, you know, wafer starts per month, naturally, your services business, which is heavily influenced by, wafer starts, you know, similar to what we saw in 2020 and 2021, when that mix of, of revenue was, was larger, you know, and a 29% gross margin, ±, naturally kind of drives gross margins there without any material increase in product growth margin. Am I thinking about that right?

James Xiao, Chief Executive Officer, Ultra Clean Holdings: Yes, you are right.

Christian Schwab, Analyst, Craig-Hallum: Great. Great.

James Xiao, Chief Executive Officer, Ultra Clean Holdings: I think that-- Yeah, so I guess the question is, what is the growth on the service business? In that sense, we, we see, double-digit growth in 2026. Again, it’s also weighted in the second half, 1, our leading-edge foundry logic, logic customers ramp up their factories in U.S. We definitely see we’re well positioned for that, U.S. foundry logic ramp, in addition to our current customer we’re serving, in U.S.

Christian Schwab, Analyst, Craig-Hallum: Great. Got it. No other questions. Thank you.

James Xiao, Chief Executive Officer, Ultra Clean Holdings: Thank you.

Operator: Thank you. There are no further questions at this time. I would now like to turn the call back to James Xiao for closing comments. Sir, please go ahead.

James Xiao, Chief Executive Officer, Ultra Clean Holdings: Thank you for joining us today. This concludes our earnings call. I will have a follow-up with you guys at a private session. Talk to you later.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you very much for your participation. You may now disconnect.