Ultra Clean Q2 2026 Earnings Call Transcript

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August 3, 2026

Key Takeaways

  • Positive Sentiment: Q2 revenue reached a record $644.9 million, up from $533.7 million in Q1, while EPS rose to $0.70 from $0.31. Higher volumes improved total gross margin to 16.7% and operating margin to 7.0%.
  • Positive Sentiment: UCT expects Q3 revenue of $700 million to $750 million, reflecting continued demand across its Products and Services businesses and momentum from AI-related semiconductor investment.
  • Positive Sentiment: The company added 26,000 square feet of clean-room capacity in Malaysia and plans further expansions in Singapore and the Czech Republic, targeting a $4 billion annualized revenue capacity by mid-2027 and $5 billion by the second half of 2028.
  • Positive Sentiment: Management sees potential for UCT to outgrow the market as customers outsource more subsystem production amid constrained internal capacity, while customer concentration improved as the top two customers fell from 64% to the high-50% range of revenue.
  • Negative Sentiment: Cash and equivalents declined to $255.9 million, with operating cash flow negative $41.1 million, as the company invested heavily in inventory and working capital to prepare for anticipated demand. Management also warned that continued industry growth could create supply-chain component shortages and delivery pressure.
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Earnings Conference Call
Ultra Clean Q2 2026
00:00 / 00:00

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Operator

Good afternoon, ladies and gentlemen, and welcome to the Ultra Clean Q2 2026 earnings call. At this time, all lines are in a 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 star zero for the operator. This call is being recorded on Monday, August 3rd, 2026. I would now like to turn the conference over to Rhonda Bennetto of Investor Relations.

Rhonda Bennetto
Rhonda Bennetto
SVP of Investor Relations at Ultra Clean

Thank you, operator. Good afternoon, everyone, and thank you for joining us. With me today are James Xiao, CEO, Sheri Savage, CFO, and Mike Keogh, CFO beginning August 5th. 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, 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.

Rhonda Bennetto
Rhonda Bennetto
SVP of Investor Relations at Ultra Clean

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

James Xiao
James Xiao
CEO at Ultra Clean

Thank you, Rhonda. Good afternoon, everyone. We appreciate you joining us for our Q2 2026 earnings call. This afternoon, I will discuss industry environment and the trend shaping our customer investment, provide an update on our execution against UCT 3.0 strategy, and highlight how we are positioning UCT to deliver sustainable growth and long-term value. Following that, Sheri will provide a financial update, then we will open up the call for questions. Throughout the second quarter, we saw increased demand across both our Products and Services businesses, reflecting healthy activity across all our end markets. Momentum is building as AI-driven investment reshaped the semiconductor capital equipment landscape, driving increased volume and complexity in the system and components our customers require. As agentic AI become more mainstream, the incremental demand extend well beyond today's GPU-intensive training clusters to inference workloads utilizing higher volumes of CPU compute.

James Xiao
James Xiao
CEO at Ultra Clean

For companies like UCT, the implications are particularly meaningful because every layer of semiconductor manufacturing must scale to support this next wave of infrastructure investment and AI chip demand expansion beyond GPU and HBM. As volume and complexity increases, customers are engaging more strategically with trusted partners like UCT earlier in the development cycle to help ensure manufacturing readiness and accelerated execution. As technologies advance, we're confident that we will play an even more important role in our customers' long-term technology roadmaps and capacity expansion. That confidence is reinforced by the unprecedented visibility our customers are sharing with us now. They are extending their forecast and giving us longer planning horizons so we can make strategic decisions regarding capacity, supply chain readiness, engineering resources, and talent investment that support their product pipeline. As AI infrastructure scales, execution speed and innovation velocity at scale will set UCT apart from the competition.

James Xiao
James Xiao
CEO at Ultra Clean

Our customers need partners that can accelerate product development, qualify new technology faster, execute flawless production ramp, and support increasingly complex global manufacturing operations. UCT is becoming more deeply embedded in their success because these are the capabilities that consistently set us apart. UCT 3.0 is transforming the way we execute. Being ramp-ready is foundational to our customer-first mindset and long-term growth strategy. It is ensuring we're prepared to support our customers whenever and wherever they need us. Over the past couple of months, we have built out an additional 26,000 sq ft of clean room space in our Malaysia facility and will be increasing our capacity within the current footprint in Singapore and the Czech Republic over the coming quarters. With those expansions, we should be able to support a $4 billion annualized revenue run rate or 200 billion WFE by the middle of 2027.

James Xiao
James Xiao
CEO at Ultra Clean

We have begun the process of evaluating future capacity requirements, strategic geographic locations and greenfield opportunities to support a $5 billion revenue run rate of 250 billion WFE. We'll continue to align our investment with our customers' long-term demand outlook and commitment. Our NPX initiative, which integrates new product development, introduction, and transfers, reached a significant milestone recently. We have launched our first NPX Center of Excellence in Hillsboro, Oregon, designed to engage earlier and more closely with our customers. This will accelerate product qualification, improve the transition from development to high-volume manufacturing, and strengthen our position as a preferred co-innovation partner. By demonstrating our value from design to production, we're increasing our opportunities to win customers' new products that support a favorable long-term margin profile. Digital transformation, the third pillar of our UCT 3.0 strategy, is enabling a more efficient data-driven enterprise.

James Xiao
James Xiao
CEO at Ultra Clean

We have begun modernizing our systems, processes, and data infrastructure, starting with the ones that best support our ramp readiness efforts. These initiatives have already improved operational visibility, accelerated decision-making, and enabled faster execution across our global operations. Combined with automation, advanced analytics, and AI-enabled capabilities, we're increasing productivity and scaling the business more efficiently as customer demand accelerates. We believe our global manufacturing footprint, engineering expertise, operational discipline, and ability to execute with speed and agility position us to capture a greater share in the years ahead. Our objective is straightforward: to deepen our strategic co-innovation partnerships, outgrow the market we serve, and create sustainable long-term value for our shareholders. Before I turn to the financial review, I'd like to announce that this is going to be Sheri's last earning call as CFO of UCT.

James Xiao
James Xiao
CEO at Ultra Clean

I'd like to take a moment to recognize and thank Sheri for her 17 years of dedicated service to UCT. Sheri has been a trusted leader and an exceptional steward of our business, helping guide the company through the periods of significant growth and transformation while strengthening our financial foundation. On behalf of our Board of Directors and the entire UCT family, thank you, Sheri, for your many contributions, unwavering commitment to the company. We wish you all the best in your well-earned retirement. Over to you for the financial review. Thank you.

Sheri Savage
Sheri Savage
CFO at Ultra Clean

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, this will be my final earnings call with UCT. It has been a privilege to be a part of UCT's growth and transformation over the past 17 years, and I want to sincerely thank our employees, customers, investors, and partners for your support. Before I begin, I'd like to welcome Mike Keogh, our new Chief Financial Officer. Mike brings extensive financial, operational, and public company leadership experience, and I am confident he will be a tremendous asset to the team as they continue to advance the UCT 3.0 growth plan. For the second quarter, demand remained healthy across both Products and Services businesses. Those market dynamics supported another quarter of solid execution and financial performance.

Sheri Savage
Sheri Savage
CFO at Ultra Clean

For the second quarter, we saw record total revenue of $644.9 million, compared to $533.7 million in the prior quarter. Revenue from Products was $572.7 million, compared to $465.7 million last quarter. Services revenue was $72.2 million in Q2, compared to $68 million in Q1. We continue to invest in capacity to support our customers' long-term growth. We recently added 26,000 sq ft of clean room space in Malaysia with additional expansion planned in Singapore and Czech Republic soon. These investments position us to support an annualized revenue run rate of approximately $4 billion by mid-2027. Planning is underway for the next phase of the capacity expansion to support $5 billion run rate over time. As production increases, we expect to benefit from improved operating leverage and corresponding margin expansion. Total gross margin for the second quarter was 16.7% compared to 16.5% last quarter.

Sheri Savage
Sheri Savage
CFO at Ultra Clean

Products gross margin was 15.1% compared to 14.6% in Q1. Services was 28.9% compared to 30% last quarter. Gross margin improved primarily due to higher volumes driving factory efficiencies. Margins continue to be influenced by fluctuations in volume, mix, manufacturing region, as well as material and transportation costs. There will be variances quarter to quarter. Operating expense for the quarter was $62.5 million compared to $61.1 million in Q1. As a percentage of revenue, operating expenses were 9.7% versus 11.4% last quarter. Total operating margin for the quarter came in at 7% compared to 5.1% last quarter. Margin from our Products division was 6.5% compared to 4.2%. Services margin was 11.2% compared to 11.5% in the prior quarter. Second quarter tax rate came in at 20%, consistent with our expectations.

Sheri Savage
Sheri Savage
CFO at Ultra Clean

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 46 million shares outstanding, earnings per share for the quarter were $0.70 on net income of $32.3 million, compared to $0.31 on net income of $14.5 million in the prior quarter. Turning to the balance sheet, cash and cash equivalents were $255.9 million compared to $323.5 million at the end of last quarter. Operating cash flow was negative $41.1 million compared to negative $33.3 million last quarter. The year-to-date cash outflow continues to reflect strategic investments in working capital, particularly inventory, to support anticipated demand and position the business for future growth.

Sheri Savage
Sheri Savage
CFO at Ultra Clean

Turning to the guidance for the third quarter, we project total revenue to be between $700 million-$750 million, and EPS in the range of $0.83-$1.3. With that, I'd like to turn the call over to the operator for questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment please, for your first question. Your first question comes from the line of Timothy Arcuri from UBS. Your line is open.

Timothy Arcuri
Timothy Arcuri
Analyst at UBS

Thanks a lot. Just on the guidance, it was quite good, it was right where I thought it would be, but it could have been even better when you consider that your biggest customer guided its systems up. It's implying its systems are going to grow 30% QoQ in calendar Q3. I realize your Products revenue outgrew their systems in June, so was it really just a timing thing or do they have some inventory or maybe you're just being, maybe arguably a little bit conservative in your guidance?

James Xiao
James Xiao
CEO at Ultra Clean

It's a little bit of both, Tim. This is James. I think that definitely you realize that we have a timing gap with certain customers where they need to integrate our subsystem into their systems, and there's a timing lag. The revenue recognition time is different because of that. For some other customer, their quarter end is a little bit different from ours. That creates a little bit of timing gap on the revenue growth. If you aggregate a two-quarter revenue growth, you will see that our revenue is on par with their growth or higher.

Timothy Arcuri
Timothy Arcuri
Analyst at UBS

Thanks a lot, James. We've heard some examples. All your customers are so full on capacity. They're basically booking into the back half of 2027, if not even some of them out into 2028, some of the slots. Is there an opportunity for them to use you as more overflow? They come to you to maybe do some things that they had originally planned to do themselves, so that maybe that can gear your revenue to the upside, just given how full their internal manufacturing is? Thanks.

James Xiao
James Xiao
CEO at Ultra Clean

Definitely we see that upside opportunity, especially when the customer are to some extent constrained by their internal capacity. In this op term, as you know, they intend to focus more on their final test and final integration capacity and overflow their subsystem capacity to partners like UCT. Definitely historically, we see that outgrow opportunity when the customer gave a higher percentage of their subsystem build to UCT in an op term like this. This is why we always see a outgrow percentage on the Products side in op term.

Timothy Arcuri
Timothy Arcuri
Analyst at UBS

Got it, James. Thank you so much.

James Xiao
James Xiao
CEO at Ultra Clean

Thank you, Tim.

Operator

Your next question comes from the line of Charles Shi from Needham. Your line is open.

Charles Shi
Charles Shi
Analyst at Needham

Thanks for taking my question. Congrats on the nice results. I have a question on the capacity plan. I think I heard you talk about maybe get the $4 billion run rate ready by the mid-2027, looking at a $5 billion run rate over time. On the $4 billion, what's the current judgment on the timing? Maybe you may have to do it a little bit earlier than mid-2027, or what's the range of possibilities, and what's the bias? On the $5 billion, what do you have to see to pull the trigger to really start that expansion to the $5 billion run rate? Thank you.

James Xiao
James Xiao
CEO at Ultra Clean

Thank you, Charles. I think that we said we're taking the phased approach from $3 billion-$4 billion, then from $4 billion$5 billion. We're executed on that plan. By end of the year, you will see $3.5 billion capacity ready, and that really match the run rate we see today. Then, in the first half of 2027, we will hit that $4 billion run rate in capacity. We're going full speed on that. As you see in my statement earlier, we're actually adding 26,000 sq ft in Malaysia site, and we're doing similar things in our Singapore and Czech Republic site. We will get that $4 billion in the first half of 2027.

James Xiao
James Xiao
CEO at Ultra Clean

For the $5 billion run rate or to address that $250 billion WFE, we're actually evaluating the new expansion plan in Southeast Asia, and we'll make that decision pretty quickly and start the execution. The timeline still, as we communicated before, in the first half of 2028, we'll reach beyond the $4 billion, and those capacity will add, and we will see the run rate of $5 billion in the second half 2028.

Charles Shi
Charles Shi
Analyst at Needham

Thanks, James. That's pretty clear. Sheri, congrats again on the well-deserved retirement. Glad working with you for quite a few years. Maybe as Mike is also here, I want to get some thoughts, maybe early thoughts from Mike, how to think about margin model, going forward. I know the team has laid out a goal of 20% gross margin, 10% operating margin at the $4 billion revenue run rate. Since the $4 billion is kind of in sight right now, any thoughts on long-term, if you will, aspirational margin targets going forward? Any early thoughts at the moment? I think we definitely appreciate that. Thank you.

Sheri Savage
Sheri Savage
CFO at Ultra Clean

Hi, Charles and Sheri. Thank you for the nice comment. I'll be answering calls on this call at this point, but you'll get to talk to Mike later. For the incremental margins, we do see them continuing to move up as we utilize more of our factories obviously. We do see us moving towards that 17% range as we move through the rest of the year and hopefully moving beyond that. The $4 billion and 20% gross margin is still the goal that we are marching towards, especially during 2027. Beyond that, we'll put out a model at some point, but that's the goals that we're still marching to with the utilization of our factories and where we're at right now.

Charles Shi
Charles Shi
Analyst at Needham

Thank you. I appreciate it.

Operator

Your next question comes from the line of Krish Sankar from TD Cowen. Your line is open.

Eddy Orabi
Eddy Orabi
Analyst at TD Cowen

Hey, guys. This is Eddy for Krish. A question on the customers beyond the biggest two customers. It seems that customer base has been growing year-over-year. Can you give us some color at what's the driver and think about it going forward? I have a follow-up.

James Xiao
James Xiao
CEO at Ultra Clean

Yeah, Eddy. Definitely, as you can see that, if you look at our quarter-by-quarter customer distribution, you can see that the top two customers as percentage of revenue actually reduced from the 64 down to the high 50s. I think that just to show that we're diversifying our customer mix so that's less volatile regardless of the segment move within the WFE. We're growing our business with our little customers. As the EUV getting the momentum and more adoption in the leading-edge foundry logic and in the memory now, we'll see that we also grow our business in terms of total revenue. Because the 2026 and 2027, we still see the WFE actually has more dep and etch intensity.

James Xiao
James Xiao
CEO at Ultra Clean

We do not see that the percentage of the non-dep and etch will grow significantly, will definitely grow in that segment as well.

Eddy Orabi
Eddy Orabi
Analyst at TD Cowen

Got it. Just a clarification about the previous question. You mentioned when you get to full utilization, your gross margins would be 20%. At full utilization, would you remind us what level of revenue run rate that would be? Would it be 20%? Because I think the September guide implies around 19% gross margin. Thank you.

Sheri Savage
Sheri Savage
CFO at Ultra Clean

Yeah. Again, as we've mentioned many times, it depends on multiple things, whether that be mix and revenue and where things are shipped from, jurisdiction, etc. Our goal is to be at $4 billion and 20% gross margin. The question is, obviously, there's many factors that go into that. It just depends on where we're at that moment. We anticipate that we will be at a run rate of $4 billion at some point during 2027.

Eddy Orabi
Eddy Orabi
Analyst at TD Cowen

Thank you very much.

Operator

Your next question comes from the line of Ed Yang from Oppenheimer. Your line is open.

Ed Yang
Ed Yang
Analyst at Oppenheimer

Hi, James. Thanks for the time. One of your competitors reported some issues with component shortages in the second quarter. Just curious, did you run into any similar problems, and were there any delivery pushouts in the quarter?

James Xiao
James Xiao
CEO at Ultra Clean

Yeah. Ed, answer is no. I think we talked about that a couple earnings ago, that we really initiate the ramp readiness campaign internally way ahead. With that, we were able to secure most of the critical components and really kind of made it through at this point. What I see is also, if you look forward, the industry is implying a double-digit growth quarter by quarter that will constantly put the pressure on the entire supply chains. You will see excursions in WFE supply chain, and we just need to actively and proactively manage that.

Ed Yang
Ed Yang
Analyst at Oppenheimer

Okay. Your comments around WFE, it sounds like, again, by mid-2027, you said you expect to see a $200 billion run rate WFE, and for UCT, $4 billion revenue run rate. It sounded like you also hinted at 2028, you expect to see good growth there, because you implied that you're going to add capacity beyond that $4 billion run rate first half of 2028. Just wondering what informs that outlook. Is it the order book? The outlook? Would love some color there.

James Xiao
James Xiao
CEO at Ultra Clean

Yeah, I think that we definitely see a good chance for the whole industry to exceed $200 billion WFE sometime in 2027, right? I think that you see the range between $190 billion up to $220 billion. We just prepare ourselves on the bull case, right? Because I do believe that in our sufficient 50 stock additional capacity will become a competitive advantage in this kind of upcycle.

Ed Yang
Ed Yang
Analyst at Oppenheimer

Perfect. Thank you.

Operator

Your next question comes from the line of Christian Schwab from Craig-Hallum. Your line is open.

Christian Schwab
Christian Schwab
Analyst at Craig-Hallum

Great. Thanks for taking my questions. Congratulations, Sheri, on a well-deserved retirement. It has been a pleasure working with you for many years. My only question has to do with, as wafer starts accelerate from the capacity that's put on, is it safe to assume that Services will grow at the same pace as Products or even potentially higher as we exit 2027?

James Xiao
James Xiao
CEO at Ultra Clean

Christian, I definitely see that the Services will grow, as we communicated before, in the double digits. As you know that the OEMs always have their extended service, there's a timing lag, right? I think that we still see the double-digit growth in the 2026 and 2027, but the acceleration will be after we see the ramp of the factories in U.S., the improvement of the utilization of one of our major customers in U.S., and also really the leading-edge ramp as they planned in factories in Korea and Taiwan.

Christian Schwab
Christian Schwab
Analyst at Craig-Hallum

Okay. That's fair. Great. No other questions. Thank you, guys. Great quarter.

James Xiao
James Xiao
CEO at Ultra Clean

Thank you.

Sheri Savage
Sheri Savage
CFO at Ultra Clean

Thank you.

Operator

There are no further questions at this time. I will now turn the call over to James Xiao for closing remarks.

James Xiao
James Xiao
CEO at Ultra Clean

Thank you, operator. We appreciate you joining us today, and we look forward to talk to some of you at the callback and update you all after Q3.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Executives
    • Rhonda Bennetto
      Rhonda Bennetto
      SVP of Investor Relations
    • James Xiao
      James Xiao
      CEO
    • Sheri Savage
      Sheri Savage
      CFO
Analysts
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