Ultra Clean Q2 Earnings Call Highlights

Ultra Clean (NASDAQ:UCTT) reported record second-quarter revenue as demand increased across its Products and Services businesses, with management pointing to AI-driven semiconductor investment and customer capacity expansions as key drivers of activity.

Chief Executive Officer James Xiao said the semiconductor capital-equipment environment is being reshaped by investment in artificial intelligence infrastructure. He said demand is extending beyond GPU-intensive training systems toward inference workloads that require greater CPU compute volumes, increasing the need for semiconductor manufacturing capacity and system complexity.

“Every layer of semiconductor manufacturing must scale to support this next wave of infrastructure investment and AI chip demand expansion beyond GPU and HBM,” Xiao said. He added that customers are providing longer planning horizons, allowing Ultra Clean to make decisions on capacity, supply-chain readiness, engineering resources and talent investment.

Second-Quarter Financial Results

All financial figures discussed on the call were presented on a non-GAAP basis. Ultra Clean posted total revenue of $644.9 million in the second quarter, up from $533.7 million in the first quarter. Products revenue rose to $572.7 million from $465.7 million, while Services revenue increased to $72.2 million from $68 million.

Total gross margin was 16.7%, compared with 16.5% in the prior quarter. Products gross margin improved to 15.1% from 14.6%, while Services gross margin declined to 28.9% from 30%. Chief Financial Officer Sheri Savage said gross-margin improvement was primarily driven by higher volumes and related factory efficiencies, though margins remain subject to changes in volume, product mix, manufacturing region, material costs and transportation costs.

Operating expenses were $62.5 million, compared with $61.1 million in the first quarter, but declined as a percentage of revenue to 9.7% from 11.4%. Total operating margin rose to 7% from 5.1%. Net income was $32.3 million, or $0.70 per share based on 46 million shares outstanding, compared with net income of $14.5 million, or $0.31 per share, in the prior quarter.

Cash and cash equivalents totaled $255.9 million at quarter-end, down from $323.5 million in the prior quarter. Operating cash flow was negative $41.1 million, compared with negative $33.3 million in the first quarter. Savage said the year-to-date cash outflow reflected working-capital investment, particularly inventory intended to support anticipated demand.

Third-Quarter Outlook and Capacity Plans

For the third quarter, Ultra Clean projected total revenue of $700 million to $750 million and earnings per share of $0.83 to $1.30.

Management said it is expanding capacity under its UCT 3.0 strategy. The company recently added 26,000 square feet of clean-room space at its Malaysia facility and plans further capacity additions within its existing Singapore and Czech Republic footprints.

Xiao said the company expects to have capacity for a $3.5 billion annualized revenue run rate by the end of 2026 and a $4 billion run rate during the first half of 2027. The company believes that capacity would support a wafer-fab-equipment market run rate of approximately $200 billion.

Ultra Clean is also evaluating additional expansion, including potential greenfield opportunities in Southeast Asia, to support a $5 billion annual revenue run rate. Xiao said the company’s previously communicated timeline anticipates reaching beyond $4 billion of capacity in the first half of 2028 and attaining a $5 billion run rate in the second half of that year.

The company has launched its first NPX Center of Excellence in Hillsboro, Oregon. Xiao said the center is intended to bring Ultra Clean into customer product-development cycles earlier, accelerate product qualification and improve transitions from development to high-volume production.

Customer Demand, Supply Chain and Margins

During the question-and-answer session, Xiao said differences between Ultra Clean’s revenue timing and that of certain customers can reflect the time needed for customers to integrate the company’s subsystems into their own systems, as well as differing quarter-end schedules. Over a two-quarter period, he said Ultra Clean’s revenue growth has been in line with or above customer growth.

Xiao also said customers facing internal capacity constraints may increasingly outsource subsystem manufacturing to partners such as Ultra Clean while focusing their own resources on final testing and integration. He said this dynamic has historically created opportunities for Ultra Clean’s Products business to outgrow the market during upcycles.

Management said its largest two customers represented a reduced percentage of revenue, falling from 64% to the high-50% range, as the company expanded business with smaller customers. Xiao said Ultra Clean expects Services to grow at a double-digit rate in 2026 and 2027, with acceleration expected after factory ramps in the U.S., Korea and Taiwan.

On supply chain conditions, Xiao said Ultra Clean did not experience component shortages or delivery pushouts in the second quarter. He attributed that performance to an internal ramp-readiness effort that began earlier, though he said continued double-digit quarterly industry growth could place pressure on supply chains.

Savage said the company continues to target a 20% gross margin at a $4 billion revenue run rate, with the goal expected to be pursued during 2027. She said Ultra Clean expects gross margins to move toward 17% through the remainder of 2026 as factory utilization increases.

CFO Transition

The call was Savage’s final earnings call as Ultra Clean’s CFO following 17 years with the company. Xiao thanked her for helping guide the company through periods of growth and transformation. Mike Keogh is set to become CFO on Aug. 5, according to the company.

About Ultra Clean (NASDAQ:UCTT)

Ultra Clean Holdings, Inc is a global supplier of critical consumables and process tools for the semiconductor manufacturing industry. The company specializes in precision parts cleaning, chemical–mechanical planarization (CMP) slurries, surface conditioning pads, and specialty components used in wafer fabrication and advanced packaging. Ultra Clean also provides assembly and test hardware, tooling, and automated modules designed to support complex front-end and back-end processes in semiconductor fabs.

Ultra Clean’s product portfolio encompasses a range of cleaning systems and consumables aimed at particle and film removal, as well as CMP slurries and pads that are engineered for uniform material removal and planarization.