ULTRA CLEAN HOLDINGS, INC. You should read the following discussion of our financial condition and results
of operations in conjunction with the Condensed Consolidated Financial
Statements and the notes thereto included elsewhere in this Quarterly Report on
Form 10-Q and in our Annual Report on Form 10-K filed with the
Overview
We ship a majority of our products and provide most of our services to
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 CPU 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.
Critical Accounting Estimates
Our Condensed Consolidated Financial Statements have been prepared in accordance
with accounting principles generally accepted in
There have been no significant changes to our critical accounting policies,
significant judgments and estimates disclosed in our Annual Report on Form 10-K
subsequent to
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Results of Operations Fiscal Year
Our fiscal year is the 52- or 53-week period ending on the Friday nearest
Discussion of Results of Operations for the three months ended
Revenues
Three Months Ended
Revenues by Segment March 31, April 1, Percent
(Dollars in millions) 2023 2022 Change
Products $ 368.6 $ 486.8 (24.3 ) %
Services 64.7 77.3 (16.3 ) %
Total revenues $ 433.3 $ 564.1 (23.2 ) %Products as a percentage of total revenues 85.1 % 86.3 % Services as a percentage of total revenues 14.9 % 13.7 %
Total Products and Services revenues decreased in the three months endedMarch 31, 2023 , compared to the same period in the prior year, primarily due to a downturn in the semiconductor industry driven largely by macroeconomic and geopolitical factors. Three Months Ended Revenues by Geography March 31, April 1, Percent (Dollars in millions) 2023 2022 Change United States$ 133.8 $ 181.4 (26.2 ) % International 299.5 382.7 (21.7 ) % Total revenues$ 433.3 $ 564.1 (23.2 ) %
Unites States as a percentage of total revenues 30.9 % 32.2 % International as a percentage of total revenues 69.1 % 67.8 %
On a geographic basis, revenues represent products that were shipped or services
that were performed at our
Cost of Revenues
Three Months Ended
Cost of revenues by Segment March 31, April 1, Percent
(Dollars in millions) 2023 2022 Change
Products $ 315.1 $ 399.5 (21.1 ) %
Services 45.2 50.9 (11.2 ) %
Total Cost of revenues $ 360.3 $ 450.4 (20.0 ) %
Products cost as a percentage
of total Products revenues 85.5 % 82.1 %
Services cost as a percentage
of total Services revenues 69.9 % 65.8 %
Total cost of revenues decreased for the three months ended
Cost of Products revenues consists of purchased materials, direct labor and
manufacturing overhead. Cost of Products revenues decreased
Cost of Services revenues consists of direct labor, manufacturing overhead and
materials (such as chemicals, gases and consumables). Cost of Services revenues
decreased
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prior year, driven by lower volumes of service orders, resulting in decrease in labor costs (the largest component of Cost of Services) and lower material costs.
In both segments, higher costs of revenue as a percent of revenue increased as certain fixed costs remain regardless of volume.
Gross Margin
Three Months Ended
Gross Profit by Segment March 31, April 1, Percent
(Dollars in millions) 2023 2022 Change
Products $ 53.5 $ 87.3 (38.7 ) %
Services 19.5 26.4 (26.1 ) %
Gross profit $ 73.0 $ 113.7 (35.8 ) %
Gross Margin by Segment
Products 14.5 % 17.9 %
Services 30.1 % 34.2 %
Total Company 16.8 % 20.2 %
Products and Services gross profit and gross margin decreased for the three
months period ended
Operating Margin
Three Months Ended
Operating Profit by Segment
2022 Change
Products $ 8.7 $ 37.6 (76.9 ) %
Services 3.7 8.1 (54.3 ) %
Operating profit $ 12.4 $ 45.7 (72.9 ) %
Operating Margin by Segment
Products 2.4 % 7.7 %
Services 5.7 % 10.5 %
Total Company 2.9 % 8.1 %
Operating profit and operating margin of Products and Services decreased for the
three months period ended
Research and Development
Three Months Ended
March 31, April 1, Percent
(Dollars in millions) 2023 2022 Change
Research and development $ 7.1 $ 6.8 4.4 %
Research and development as a
percentage of total revenues 1.6 % 1.2 %
Research and development expenses increased
Sales and Marketing
Three Months Ended
March 31, April 1, Percent
(Dollars in millions) 2023 2022 Change
Sales and marketing $ 13.1 $ 13.8 -5.1 %
Sales and marketing as a percentage of
total revenues 3.0 % 2.4 %
Sales and marketing expense decreased during the three months period ended
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General and Administrative
Three Months Ended
March 31, April 1, Percent
(Dollars in millions) 2023 2022 Change
General and administrative $ 40.4 $ 47.4 -14.8 %
General and administrative as a
percentage of total revenues 9.3 % 8.4 %
General and administrative expenses decreased
Interest and Other Income (Expense), net
Three Months Ended
March 31, April 1, Percent
(Dollars in millions) 2023 2022 Change
Interest income $ 0.5 - n/m
Interest expense $ (11.8 ) $ (6.4 ) 84.4 %
Other income (expense), net $ 2.8 - n/m
n/m - not meaningful
Interest expense increased
Other income (expense), net, increased
Provision for Income Taxes
Three Months Ended
March 31, April 1, Percent
(Dollars in millions) 2023 2022 Change
Provision for income taxes
89.7 % 21.6 %
The increase in the effective tax rate for the three months period ended
Company management continuously evaluates the need for a valuation allowance on
its deferred tax assets and, as of
Liquidity and Capital Resources
Cash and cash Equivalents
The following table summarizes our cash and cash equivalents:
March 31, December 30,
(In millions) 2023 2022 Decrease
Total cash and cash equivalents
The following table summarizes the Condensed Consolidated Statements of Cash
Flow information:
Three Months Ended
March 31, April 1,
(In millions) 2023 2022
Operating activities $ 28.0 $ (67.4 )
Investing activities (27.3 ) (28.4 )
Financing activities (36.2 ) (2.6 )Effects of exchange rate changes on cash and cash
equivalents (1.2 ) (1.1 ) Net decrease in cash and cash equivalents$ (36.7 ) $ (99.5 ) - 25 -
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Our primary cash inflows and outflows were as follows:
•
For the three month period ended
•
The major contributors in net changes in operating assets and liabilities for
the three months ended
o
Accounts receivable decreased
o
Accounts payable decreased
•
Net cash used in investing activities during the three months ended
•
During the three months ended
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
Our subsidiary 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. For the three months ended
We anticipate that our existing cash and cash equivalents balance and operating cash flow will be sufficient to service our indebtedness and meet our working capital requirements and technology development projects for at least the next twelve months. The adequacy of these resources to meet our liquidity needs beyond that period will depend on our growth, the size and number of any acquisitions, the state of the worldwide economy, our ability to meet our financial covenants with our credit facility, the cyclical expansion or contraction of the semiconductor capital equipment industry and the other industries we serve and capital expenditures required to meet possible increased demand for our products.
In order to expand our business or acquire additional complementary businesses or technologies, we may need to raise additional funds through equity or debt financing. If required, additional financing may not be available on terms that are favorable to us, if at all. If we raise additional funds through the issuance of equity or convertible debt securities, our stockholders' equity interest will be diluted and these securities might have rights, preferences and privileges senior to those of our current stockholders. We may also require the consent of our new lenders to raise additional funds through equity or debt financing. No assurance can be given that additional financing will be available or that, if available, such financing can be obtained on terms favorable to our stockholders and us.
As of
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Borrowing Arrangements
The following table summarizes our borrowings:
March 31,
2023
Weighted-
Average
(Dollars in millions) Amount Interest Rate
U.S. Term Loan $ 491.0 8.5 %
Fluid Solutions Debt Facilities 10.9 5.1 %
Debt issuance costs (9.2 )
$ 492.7 On
The Term Loan has a maturity date of
On
The revolving credit facility has an available commitment of
The letter of credit facility has an available commitment of
The Credit Agreement requires the Company to maintain certain financial
covenants including a consolidated fixed charge coverage ratio (as defined in
the Credit Agreement) as of the last day of any fiscal quarter of at least 1.25
to 1.00, and a consolidated leverage ratio (as defined in the Credit Agreement)
as of the last day of any fiscal quarter of no greater than 3.75 to 1.00. The
Company was in compliance with all financial covenants as of the quarter ended
The Company has a credit agreement with a local bank in the
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Fluid Solutions has credit facilities with various financial institutions in
As of
The fair value of the Company's long-term debt was based on Level 2 inputs, and fair value was determined using quoted prices for similar liabilities in inactive markets. The Company's carrying value approximates fair value for the Company's long-term debt.
Capital Expenditures
Capital expenditures were
Contractual Obligations
The Company had commitments to various third parties to purchase inventories
totaling approximately
In conjunction with the sale of our products in the ordinary course of business,
we provide standard indemnification against certain liabilities to our
customers, which may include claims of losses by their own customers resulting
out of property damages, bodily injuries or deaths, or infringement of
intellectual property rights by our products. Our potential liability arising
out of intellectual property infringement claims by any third party is generally
uncapped. As of
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