Sheri Brumm - Vice President of Finance Jim Scholhamer - Chief Executive Officer Casey Eichler - President and Chief Financial Officer.

Christian Schwab - Craig-Hallum Capital Edwin Mok – Needham & Company Patrick Ho - Stifel Nicolaus.

Welcome to the Ultra Clean Holdings Q3 2015 Earnings Conference Call. My name is Ashley and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. There will be a Q&A session after the company has presented its results. Please note that this conference is being recorded.

I will now turn the call over to Sheri Brumm, Vice President of Finance. Sheri, you may begin..

Thank you. Welcome to our third quarter financial results conference call. Presenting today are Jim Scholhamer, Ultra Clean’s Chief Executive Officer; and Casey Eichler, Ultra Clean’s President and Chief Financial Officer.

Casey will begin by discussing the financial results for our third quarter, and Jim will follow with some remarks about the business. A few moments ago, we issued a press release reporting financial results for the third quarter ended September 25, 2015.

The press release can be accessed from the Investor Relations section of Ultra Clean’s website, along with the information for the tape delay and replay of the live webcast at uct.com. Together with our recently issued press release, this conference call enables the company to comply with the SEC regulations for fair disclosure.

Therefore, investors should accept the contents of this call as the Company's official guidance for the fourth quarter of fiscal 2015. Investors should note that only the CEO and the CFO are authorized to provide Company guidance.

If at any time after this call, we communicate any material changes in guidance, it is our intent that such updates will be done officially via public forum such as a press release or publicly announced conference call. The matters that we discuss today include forward-looking statements as defined in the U.S.

Private Securities Litigation Reform Act of 1995, related to matters including our future financial performance, new product orders and shipments and industry growth.

Investors are cautioned that forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those projected in the forward-looking statements. Some of those risks and uncertainties are detailed in our filings with the Securities and Exchange Commission.

The Company disclaims any obligation to publicly update or revise any such forward-looking statements or to reflect events or circumstances that occur after this call. Now Casey will discuss the third quarter results..

Thank you, Sheri. Our third quarter results reflect the initial effects of the industry-wide semiconductor slowdown. Revenue for the third quarter was $122.8 million, an increase of 4.5% from the prior quarter and an increase of 4.9% increase when compared to the same period a year ago.

Semiconductor revenue for the third quarter was $113 million, an increase of 2.3% from the prior quarter and non-semiconductor revenue was $9.8 million compared to $7.2 million in the second quarter. We remained focused primarily on the semiconductor markets while continuing to pursue opportunities in a variety of other markets.

Due impart to the acquisition of Miconex revenue outside the US grew to 36% compared to 33% last quarter. We had two 10% customers in the quarter. Gross margin was 15.4% for the third quarter compared to 16% in the second quarter due to shifts in product mix and still within our targeted business model of 15% to 18%.

Excluding one-time charges and amortization of intangibles, third quarter operating expenses were $13.9 million or 11.3%. This includes the addition of expenses associated with the Miconex acquisition and compares to $14 million or 11.9% in the second quarter.

We are in the process of optimizing facilities in several regions and managing our overall cost structure while also investing in new technologies in Southeast Asia.

In the fourth quarter, we anticipate a slight increase in operating expenses related to professional services fees around the audit process and other related cost associated with closing out the fiscal year. Operating income was $3.1 million or 2.5% in the third quarter compared to $3.4 million or 2.9% in the second quarter.

Excluding amortization of intangibles and one-time charges, operating income was $5.1 million or 4.1% in the third quarter compared to $4.8 million or 4.1% in the second quarter. Interest expense for the quarter was $554,000 roughly flat compared to the second quarter.

As expected, taxes were approximately 28% for the third quarter, similar to what we anticipate for the fourth quarter. We continue to explore ways to balance our model in all perspectives.

Third quarter net income was $1.7 million or $0.05 per share excluding amortization expense and other one-time charges, third quarter net income was $3.1 million or $0.10 per share compared to $3.2 million or $0.10 per share in the second quarter.

Diluted shares outstanding were 32.2 million for the quarter, an increase of 378,000, due primarily to acquisition of Miconex. Non-cash charges for the third quarter were $1.1 million related to stock compensation, $1.6 million related to depreciation and $1.6 million related to amortization of intangibles.

As part of our ongoing process, we will be performing a review of goodwill and intangibles during the fourth quarter for all previous acquisitions. Turning to the balance sheet, cash on hand was $59.8 million, a decrease of $16.8 million from the prior quarter. This was primarily the result of the acquisition of Miconex.

We anticipate an increase in net cash for the fourth quarter. Accounts receivable was $57.5 million flat with the second quarter. Days sales outstanding decreased to 42 days from 44 days at the end of the second quarter. Accounts payable of $47.5 million increased approximately $1 million over the prior quarter.

Days payable outstanding at the end of the third quarter decreased to 41 days and 42 days in the second quarter. Net inventory was $75.6 million, an increase of $11 million over the prior quarter.

The majority of the increase in inventory was a result of the acquisition of Miconex and the shipments expected in the fourth quarter from our Singapore facility due to new product wins. We expect lower inventory levels during the fourth quarter of 2015. Now, let me shift to our guidance.

The industry-wide slowdown in semiconductor equipment that began in the latter half of the third quarter is expected to continue through the fourth quarter. We are anticipating fourth quarter revenues to be between $98 million and $103 million.

While we are taking the necessary steps to reduce our overall cost structure, and managing our expenses, we expect non-GAAP loss per share to be in the range of $0.01 to $0.04, excluding amortization charges. As noted earlier, the effective tax rate for the quarter is expected to be 28%.

With that, I’ll turn it over to Jim to update you on the third quarter operational highlights and a recap of our growth strategy.

Jim?.

Thanks, Casey. Even as the industry has been through a slowdown, our focus is on the long-term, opportunities for UCT. The quarter we undertook, the strategic initiatives that should position us to outpace the semiconductor capital equipment market over the long-term.

As consolidation in the industry continues the flexibility of our financial model is enabling us to identify and pursue multiple growth opportunities.

With the completion of - accretive acquisition in less than a year we are poised to more quickly enter adjacent semiconductor markets broaden our offerings and better serve our customers by offering more leading edge comprehensive solutions.

As the semiconductor market begins to come off its record highs, we believe investment in 2016 for a leading edge equipment will moderate as the industry awaits the ramp of 3D NAND, FinFET and 10 nanometer technologies.

Similar to last year or two, advanced technologies are requiring a significant amount of investment in deposition and removal where our primary customers are quite strong. Companies exposed to these areas have the potential to outpace the overall market when cap investment resumes.

With the industry fundamentals in tact and multiple drivers ahead, we expect the industry pause to be relatively short lived. With an eye towards identifying opportunities in cutting-edge technologies that have the best potential to add value to UCT in the long run, we are also exploring ways to integrate and utilize new capabilities.

Already this year, we have added to our growing portfolio with the acquisition of Marchi and Miconex, through additions such as these we are creating early entry points with customers where we can partner with them to provide complete solutions to solve their challenges and remain an important resource throughout the product life cycle.

Through our acquisition of Marchi, we are adding key technological capabilities around our core business, as a leading manufacturer of custom thermal control products for the semiconductor industry, Marchi adds customer heater capabilities along chamber gas delivery and exhaust systems.

These technologies are allowing us to become involved earlier in our customers’ engineering and design processes and offer added value by providing complete solutions for new chemistries in deposition removal processes.

This accretive acquisition is opening up high value new markets for us with a potential to increase revenue and profitability levels in the future. Our recent acquisition of Miconex expands UCT’s manufacturing to include complex modules for the semiconductor industry’s wed chemistry process.

Through Miconex, we can address these areas within deposition, clean and removal market and deliver total complex modules. This accretive acquisition is adding new and differentiated capabilities to UCT giving us access to markets where we previously do not have a footprint.

Keeping an eye on technological advancements that may play a role in the semiconductor manufacturing space over the long-term, we have made some early investments in 3D printing. We recently opened a 3D printing facility in Singapore that can quickly produce parts as customer needs require.

In closing, we believe that the semiconductor end-markets and fundamentals are intact and that the next wave of investments in 3D NAND FinFET and 10-nanometer technologies will drive spending in 2016.

Consistent with our growth strategy, we plan to continue looking at a variety of ways to expand our capabilities in the semiconductor manufacturing, capturing new business, better serve our partners and customers for the long-term.

We are constantly looking at ways to improve operating efficiencies in our overall cost structure to position us to more profitably capitalize on the upturn when the cycle resumes. With that, operator, I’d like to open the call for questions. .

Thank you. [Operator Instructions] And your first question comes from Christian Schwab with Craig-Hallum Capital. .

Great. Guys, did you guys looked at when the industry conditions are improved, I know you said that, you expect maybe that will improve here as the – that this slowdown will be short lived earlier, another one of your peers talked about the environment being Marchi and maybe being so for two to three quarters.

I am wondering what dialogue you’ve been having with your two leading customers that makes you feel good that that maybe pick up as soon as the March quarter on a sequential basis?.

Yes, hello Christian. Thank you for the question. I think, it’s difficult for us to see out more than two quarters. But I think both our customers and ourselves, as a short-term issue and we see that even to end up – even with last year that there has to be some ramp coming up at least some time in next year..

So as you guys look to next year with, talking about with - equipment being flat to slightly down on a year-over-year basis, are you guys in a position to outperform that with any market share, since you make sure you anticipate that you would fall along on that trajectory next year?.

Yes, Christian, I think, yes. We have picked up several wins along the way this year that we think in the next upturn as we head into the next upturn it will lead to a higher for us whenever that turn comes. .

Okay, great. No other questions. Thanks..

Thanks..

Your next question comes from the line of Edwin Mok with Needham. .

Hey thanks for taking my questions.

So first housekeeping, Miconex did it contributed revenue this quarter? And if it did, excluding Miconex, did your revenue grew or declined in the first quarter – in the third quarter?.

Yes, so basically they did contribute revenue and more importantly, they contributed to be accretive this quarter which is what we had talked about when we announced the acquisition. Roughly without Miconex, I would say we were flattish during the year, but they did contribute what I would expect it to and that business looks very good for us.

Now obviously they are subject to the same market conditions that we are but we are very pleased right now. .

I see, I see, when you guys announced the acquisition they had $40 million of last 12 month revenues.

Given the industry got slowdown, but based on the design activity that they have, do you think that – do you think Miconex itself can kind of get to the same revenue level or they are subject to the same industry slowdown we expect for the industry basically?.

Yes, I mean, our largest customers are their largest customers as well. So they are going to be impacted by that.

I do think they’ve got some interesting design wins that they’ve got lined up for next year that will help them outpace the market whatever that is next year, but they are going to have the impact at the same way we are by those large customers..

I see, it’s great and it seems that you guys have done two acquisitions so far this year or over the last few quarters already and it seems like you are integrating that. Was those done and Marchi has been on the – for while.

Can you maybe, what you can update us on a longer-term view of how you think about revenue strategy actually calling from these acquisitions and when do you expect to see some of that potentially start to kick in, into your model?.

Sure, what happens when we get capabilities broadly across, maybe a product line or a company, we can not only participate in the traditional markets we participated in but we can also do more complete assembly or more complete sub-assemblies and that gives us an opportunity to get in early for example in the Marchi situation with the engineers in the design process and not only take advantage of the heater opportunities which is their core business, but also some of the other opportunities that we have in the gas delivery and some of the other areas.

So, I think that the synergy of having a complete solution or a more complete solution if you will does bring us in more broadly across customers and creates some synergies across the organization to get us involved more broadly..

And Edwin if I may add that, that process tends to take a longer time because it’s more in the R&D cycle. So you tend to the see the results a little bit later on beyond the immediate impact. .

I see, so this is not like one quarter kind of you start to see that more like a year or plus kind of time right in before we start to see a benefit of that..

Yes..

Something like that..

Typically..

Yes. .

Yes, typically when you get in early at the R&D cycle, from our customers that R&D cycle it takes quite a long time before that becomes impacts revenue. .

Okay, that’s fair.

And then, I think you guys talk about OpEx and now that you own these business right, how do guys think about – obviously I think Casey talk about audits being up in the coming quarter more than professional service cost right, but anyway you give us a way to think about OpEx this $13.9 million kind of blended average run rate or do you see move into for the improve time?.

Yes, I think there are initiatives that we’ve had that we talked over the last couple of quarters to reduce OpEx some consolidation as we referenced in our discussion today and also some other opportunities that we get obviously as you tight – more tightly integrate some of the acquisitions. But I think there are opportunities there.

We are also – as we mentioned earlier, investing in some other things like the 3D printing and the prototyping and some of those and so we are trying to balance our – take a longer term look and balance our short-term desire to keep cost down with the opportunities that we see out in front of us.

The other thing, just as a reminder, we do have some cost in Q4. Q1 also continues to be heavy because we have the – not only the SEC and filing in the proxy and all of that type of things going on, but we are at the finishing of the K. Payroll taxes kick back in, in Q1 and that always adds.

So, Q1 tends to be the one that has a little bit of a falls up and then we tend to back down a little bit, but Q4 starts to ramp that way..

Okay, great. One last question, just to clarify your commentary about the downturn being short lived.

To the extent that business level normalize, do you anticipate the March quarter to be kind of stable at this level above current level, below, just going directionally, you have any kind of view you can share with us?.

Edwin, as you know, we don’t try to prognosticate out more than one quarter. But we believe the fundamentals are all there in upturn at some point in the next year. .

Okay, that’s it. Thanks, that’s all I have. Thank you..

Thanks, Edwin..

And your next question comes from the line of [Indiscernible].

Thank you. Hey, Casey, did you – I may have missed it, did you have some operating cost or non-cash or cost on restructuring in the quarter. I am not sure what I….

Yes, we’ve gone through the process of doing some restructuring, how to see to try to get our OpEx down, but we didn’t have any specific write-offs or specific called out charges related to that. It’s just a matter of streamlining and making things more efficient. .

Okay, and Q4, might there be some, as you….

I don’t anticipate any one-time charges related to that activity right now.

Obviously, as we get more and more into it, there could be something that comes up, but really what we are trying to do is, get our capacity inline with our customers not only across the organization but in particular sites as they continue to move around their operations as you know. .

Sure. Looking outside of semi, I know you had a business development unit there.

What’s currently going on and maybe it’s tied to 3D printing, but is there a pipeline developing outside assembly?.

Yes, there is a pipeline developing outside to semi.

The 3D printing as I think Jim has commented in the past, that’s really something that really looks beyond 2016 to really trying to take a bit of a pioneer approach to an interesting technology that we think is going to be important to it, but it’s not something that we were betting on 2015 to start to really realize a lot of benefit in 2016.

So I would try to set the perspective on that. Having said that, there are a lot of other opportunities that we are looking at, you know that when you are starting in a different vertical market from scratch, it takes more time and so I think some of that will start to get harvested next year and as it does, we’ll start to call that out.

But, really the focus continues to be into the first half of 2016 for sure all about the semi and the semi market and some of the opportunities we can exploit because of these acquisitions this year..

Okay, and your manufacturing contribution outside of the US, Asia to help the margin profile, what – you know, looking out a couple of years, where kind of that go, I mean, what percent of manufacturing ultimately comes from Asia?.

I would say, outside of the US, it puts Miconex in there as well or anything else we would do in Europe, that could get to a 50-50 balance out a few years, couple of years. .

Okay, great, thank you..

Yes, I should say, as a footnote to that, it’s really driven by our customers obviously we were responding to their needs..

Yes, yes, okay. Great, thanks, Casey. .

You got it. Thank you. .

The next question comes from the line of Patrick Ho with Stifel..

Thank you very much. Casey, maybe specifically for you. You mentioned in some of your comments about the balancing act particularly for OpEx and cost management during these times.

Can you just give a little color or maybe a little clarity, especially in today for you, given that you’ve made two acquisitions this year that you are trying to integrate them, you’ve been through many of these cycles, what’s the balancing act of – I guess the integration part along with managing through these semiconductor cycles that we’ve seen in the past?.

Yes, I mean, it’s really kind of two stepper things as you called out. Whenever you have acquisitions, you are trying to integrate things very effectively but not takeaway from the benefit of what you are getting.

I mean sometimes we learn things from the company we acquire, sometimes they learn things from us and so you kind of jointly partner together to try to work those things down.

There is the – the back-office is the first thing, you know the human resources, the finance functions, some of the supply chain, supply chain management et cetera, managing the vendors, that’s the first wave.

And the second wave gets a little deeper about how do you think about engineering, how do you think about some of the other corporate functions that lay across an organization.

When you look at the balancing act of sites, as you know better than anybody, Patrick, the first move was from the Silicon Valley outside two other locations in the US then that was kind of a move to more China base because of the low cost region capabilities.

Now, as you know, a lot of the customers are moving more towards Southeast Asia, be it Singapore, Malaysia, Indonesia, et cetera.

So, you are trying to balance all that and flex and flow with your customers and as you do that, you have to be careful that when you are turning something on, you are turning something off, so that your capacity balance stays reasonable, but yet you can take advantage of opportunities in the future.

So that’s a little bit more what I am talking about. .

Great. That’s really helpful.

And maybe as a follow-up question, given your strong presence on the semiconductor side, particularly in the areas of – in that position where we are seeing higher capital-intensity, if we go to the other side on the non-semi side of things, in the past, that’s provided a little bit of support or kind of a buffer whenever we’ve gone through these semi down cycles, given where it is today, can you kind of give us an update on I guess, the valuation works, new market entry opportunities, or even growing opportunities that you have today that will help grow that segment of the business, say sometime later in 2016 and into 2017, that will once again provide a little bit of a buffer during the semi down cycles?.

Yes, sure. I mean, you are absolutely right. It historically, some of the customers like FEI and Intuitive Surgical and some of the others have been somewhat are buffer like – for our customers they have refurb spares and things like that that’s kind of a steady business for them where we don’t really have much of that. So it has been helpful.

As we look forward, as I mentioned, try to get into a few of the different markets, we talked about the verticals being consumer some of the energy and some of the other industrial, we’ve got some interesting things going on.

So I don’t want to downplay the fact that we don’t have some interesting things going on, but I also want to keep people focused that to your point, developing those other vertical markets takes time, we’ve added some great marketing capability and expertise within our company over the last quarter and that’s already starting to pay-off some dividends for us really getting us, a really a more mature look at some of these other markets including semi.

And so that individual is going to build out that team and I am very confident in what she is today and what we are going to do in the future off of that. But it does take time. You don’t just add water and stir and you’ve got it.

So, that’s why I am trying to be cautious as you know, because I don’t want people to get too overly focused on that today when we have so much great opportunity in semi, but I don’t want people to think that we’ve forgotten it. .

Great, thank you very much..

You got it, thank you, Patrick..

[Operator Instructions] And you have a follow-up question from Christian Schwab with Craig-Hallum Capital. .

Hey guys. I am just trying to figure out the map by customer here.

You guys are confident you are not losing any share?.

Yes..

Okay, do you think that perhaps we are going through an inventory correction at one or two of your leading customers on a certain sub-segment of equipment? I am just trying to get to a 20% reduction on a sequential basis..

I think if you look at the shipment base from our customers, Christian, we are pretty much in line with that. .

Okay..

And that’s more along the lines of what we do, where it turns business, there is a lot of revenue that they can achieve through – they have a 30% spares and service business. They have revenue that turns upon FAT which is final step in the test which can take two or three quarters after they ship the tool, et cetera, et cetera.

There is so many – as we’ve cautioned many times before, there is so many, we are kind of spring between us and our customers and there is so many variables to retain that, but if you look at the shipment base of our main customers, it’s around – it’s pretty typical to where we are right now which is more closely resembles what we are doing..

Right, I’ll double check with that.

So, we haven’t lost money since 2009 I think, are we going to look at the OpEx structure with a little bit more discipline or this is just going to be the new norm if we go through?.

No, no, Christian, so, I mean we are looking at short-term cost reduction opportunities as well as long-term continuing to look at consolidation, but as well as we are investing in new areas where we think we can hit the upturn with a higher level that we’ve hit the upturns in the past and so we can be ready to really take advantage of the next upturn and hit new revenues that we’ve not been able to achieve before as we are bringing in new modules, new share, new customers, et cetera.

These all takes a little bit of investment, but at the end of the day downturn, down the road this will mean that there will be a higher peak in the future as well.

So, we are trying to balance the short-term cost structure as well as the long-term cost structure as well as investing in things that we think will cause us to increase our revenue over the long-term. .

Okay, that’s great. Thank you guys..

Okay, thanks..

And your next question is from the line of [Indiscernible]..

Good afternoon guys. Thanks for taking the question. .

Sure, Steve..

I wonder if we can just talk a little bit kind of the capital allocation and how you guys think about it, obviously you now understand the strategy of wanting to build out the functionality and capabilities at the organization, but at some – well, I guess, the questions is, is there a price for UCT common stock at which you guys say, instead of buying acquisitions through sort of doing acquisitions, we’d rather buy back our own stock.

You guys have spent $60 million over the last year post markets the market cap of the company of the entire company is fairly more than two times that?.

Yes, Steve. I mean, clearly, and that’s not lost, I mean, and I think it’s a good point at this – it’s something that, when we get to a position like this, we talk about, obviously in the board level as well as in the executive level. We try to look at the allocation and use of cash.

When we think the opportunity is in front of us and what the best way to get return for investors is. So, I don’t think that, I mean, typically as you know, you and I discussed this, it’s not a – it’s all we needed to look, that we’ve seen a lot of opportunity and I think the use nicely with things like Marchi and Miconex.

Having said that, there is a point to what you are bring up that did you want to readdress that and I think that that is a very legitimate question that will be readdressed..

Okay, great. Thanks for taking the question guys. .

You bet. .

We have no further questions at this time. I would now turn the call back to management for further remarks. .

So, we thank you for joining us today and we look forward to updating on the next call. Thank you very much..