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

Arthur Su - Needham & Company Patrick Ho - Stifel, Nicolaus & Company, Inc. Christian Schwab - Craig-Hallum Capital Group LLC.

Welcome to the Ultra Clean Holdings Q4 and Fiscal Year 2015 Earnings Conference Call. My name is Aiesha and I will be your conference 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 would now like to turn the call over to Sheri Brumm, Senior Vice President of Finance. Sheri, you may begin your conference..

Thank you, operator. Welcome to our fourth quarter and fiscal year 2015 financial results conference call. Presenting today are Jim Scholhamer, UCT’s Chief Executive Officer; and Casey Eichler, UCT’s President and Chief Financial Officer.

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

The press release can be accessed from the Investor Relations section of UCT’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 first quarter of fiscal 2016. 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 fourth quarter and fiscal 2015 results..

Thank you, Sheri.

For fiscal year 2015, total revenue was $469.1 million, compared to $514 million for fiscal year 2014, a decrease of 8.7%, as we worked through the changes in our non-semi business, increased our focus on the semiconductor market, and invested in expanding the breadth of our capabilities to keep pace with our customers’ growth long-term.

Semiconductor revenue reached a record high of $433.3 million for fiscal 2015, an increase of 2.4% over 2014. Revenue from outside the United States contributed to 34.5% of fiscal year 2015.

Revenue for the fourth quarter was a $103.4 million, a decrease of approximately 15.8% from the prior quarter and a decrease of 13.8% when compared to the same period a year ago. The fourth quarter decrease was consistent with the industry-wide slowdown in semiconductors.

Semiconductor revenue for the fourth quarter was $97.1 million, a decrease of 14% from the prior quarter and non-semiconductor revenue was $6.3 million compared to $9.8 million in the third quarter. Revenue from outside the United States contributed 38.4% for fourth quarter, compared to 35.6% in the prior quarter.

During the quarter, we had two customers accounting for more than 10% of our revenues. Gross margin for the fourth quarter was 12.9%, compared to 15.4% in the third quarter, a reflection of the decline in revenues for Q4. For fiscal year 2015, gross margin was 15.1% compared to 14.2% in fiscal year 2014.

We are pleased that we’ve returned to our target gross margin of 15% to 18% for the fiscal year. Excluding one-time charges and amortization of intangibles, operating expenses for the fourth quarter were $13.8 million or 13.4%, as compared to $13.9 million or 11.3% in the third quarter.

During the quarter, we incurred pre-tax charges of $2.2 million for intangible assets amortization and 600,000 of costs related to severance payments and the closure of one of our U.S. facilities.

For fiscal year 2015, operating income was $5.8 million or 1.2% before interest expense and income taxes as compared to $18.2 million or 3.5% in fiscal year 2014. Operating loss for the fourth quarter was $3.3 million or 3.2% before interest expense and income taxes, compared to operating income of $3.1 million or 2.5% in the third quarter.

Excluding amortization of intangibles and one-time charges, operating income for fiscal year 2015 was $15.7 million or 3.4%, and for the fourth quarter was an operating loss of $500,000 or 0.5%. Interest expense for the quarter was $571,000, an increase for approximately $18,000 from the prior quarter.

Quarterly, the company reviews its worldwide deferred tax assets to determine the likelihood of whether or not they’ll be realized. In the fourth quarter, this resulted in a non-cash charge of $13.9 million for evaluation allowance on the deferred tax assets related to the company’s net operating loss carry forwards.

In the future, while we are in evaluation allowance position, there will continue to be additional non-cash tax expenses, which we will highlight. Excluding the impact of this adjustment, the tax rate for the year and the fourth quarter of fiscal 2015 would have been 13.3% and 44.5% respectively.

Including the non-cash charge for the valuation allowance, fiscal 2015 net loss was $10.7 million or $0.34 per share compared to net income of $11.4 million or $0.38 per share for fiscal 2014.

Excluding the charge for valuation allowance, intangible amortization expense and one-time acquisition and severance charges, fiscal year 2015 net income was $10.2 million or $0.32 per share as compared to 2014 net income of $15.3 million or $0.51 per share.

The fourth quarter net loss was $15.8 million or $0.49 per share compared to net income of $1.7 million or $0.05 per share in the third quarter.

Excluding intangible amortization expense of $2.2 million, one-time charges of $600,000 and the tax allowance, the fourth quarter net loss was $400,000 or $0.01 per share compared to net income of $3.1 million or $0.10 per share for the third quarter.

Diluted shares outstanding were $32.2 million for the quarter, an increase of 57,000 shares from the prior quarter. Non-cash charges for the fourth quarter were $1.1 million related to stock compensation, $1.3 million related to depreciation, and $2.2 million related to amortization of intangibles. Turning to the balance sheet.

Cash on hand was $50.1 million, a decrease of $9.7 million from the prior quarter. Outstanding debt was $75.5 million, a decrease of $1.4 million from the previous quarter. Net cash decreased $8.3 million in the quarter. Accounts receivable was $58.2 million, up $700,000 from the prior quarter.

Day sales outstanding were 51 days from 42 days at the end of the third quarter. Accounts payable of $38.7 million decreased approximately $8.7 million over the prior quarter. Days payable outstanding at the end of the fourth quarter decreased to 39 days from 41 days at the end of the third quarter.

Net inventory was $72.7 million, a decrease of $2.8 million over the prior quarter. The decrease in inventory was a result of lower demand in the fourth quarter offset slightly by higher demand in the first quarter as conditions in the semiconductor market improve. Now, let me shift to our guidance.

UCT has begun to see a recovery in the semiconductor market. As a result, we anticipate a sequential increase in revenue in the first quarter of 2016. Our revenue guidance for the first quarter is $108 million to $113 million. We expect a range of $0.02 loss to $0.01 net income per share.

Excluding intangible asset amortization costs of $1.4 million, the company expects income per share to be in the range of $0.01 to $0.04. Due to increases in payroll taxes and outside services for year-end accounting and legal fees, we believe operating expenses as a percentage of revenue will be flat in the first quarter sequentially.

The effective tax rate for the first quarter is expected to be 28%, excluding the effect of the valuation allowance discussed earlier. Now, Jim will discuss our operating highlights for the fourth quarter.

Jim?.

Thanks, Casey. My first year as CEO of UCT was a busy and productive one. At the beginning of 2015, we laid out our strategy to focus primarily on the semiconductor markets, where we saw the most opportunity for us over the next few years.

During the course of the year, while we work through some of the challenges in our non-semi market, we also broadened our reach into leading semiconductor customers and added important new capabilities.

We continued to align our business investing for the future in our adaptable platform to accelerate revenues by addressing the highest growth opportunities. Looking at 2016, we see a number of opportunities to continue to grow and expand our semiconductor business.

We’re targeting the higher growth next-gen technologies that are poised to outperform the broader semiconductor equipment market. We are continuing to invest to ensure we have the capabilities in place to grow and stay aligned with our customers in order to deliver the highest quality most cost effective solutions.

We had the highest semiconductor revenue in our history in 2015 at $433 million. While total revenue declined for the year, we work to offset the decrease in our non-semi business and managed through the industry-wide semiconductor pause in the fourth quarter. We improved gross margins to 15.1% for the year within our target range of 15% to 18%.

Halfway through the first quarter of 2016, the semi industry is showing signs of recovery and we are well-positioned with our customers in the fastest growing segments of the market.

As the year progresses, we expect to benefit from this transition to new technologies, which are leading to increased capital investment in areas including 3D NAND or V-NAND 14 nanometer and 16 nanometer FinFET and 10 nanometer.

These advanced technologies are driving a growing number of deposition and removals steps, along with better performance parameters and lower power consumption requirements. With our increasing exposure to these leading-edge technologies, we expect to outperform the overall semiconductor capital equipment market in 2016.

UCT already has a strong and growing foothold with customers in these advanced technologies. And we are maintaining our leadership position by continuing to invest in our capabilities and expand into new areas.

During the year, we accomplished several strategic initiatives, including new capabilities and prototype engineering, providing us an early entry point into the design process with our customers.

At a prototype stage, we offer our customers a comprehensive new product introduction process Our design for manufacture or DFM capability is the key focus for us throughout all phases of the product lifecycle, as it allows for early entry and modification of design as needed.

DFM reduces risk, cost, and cycle time for our customers by modifying product designs to optimize fabrication and assembly step, while keeping our customers overall design integrity.

In the integration phase, we are leveraging our aggregating power – buying power through our global network of strategic partners to provide high-quality assemblies, while optimizing costs. These services are driving our improved market position and capitalize on the trend towards more value-added solutions.

We completed two successful accretive acquisitions that added to revenue and margins and expanded our leading edge offering.

Through acquisitions such as Marchi and Miconex last year, we executed on our strategy to move from primarily gas delivery to more of an integration company by adding to our core capabilities with thermal control products and complex modules for wet chemistry processes.

We now have greater opportunities for growth by providing early entry points with customers from the design and prototype phase to the integration phase cementing us as an important partner for the OEMs through the entire product lifecycle.

These acquisitions add important new capabilities customers and applications, diversity to our model allowing us to enter new market segments and expand our sem – our serviceable market.

Entering 2016, these accomplishments are setting the stage for us to gain market share, broadened our reach in the higher growth semi equipment markets, and outpace the overall semi equipment spend driving towards our long-term growth objectives.

With the semiconductor capital equipment industry now showing signs of recovery, driven by further investment in advanced technologies, our ability to dynamically react to our customers changing needs by delivering high-quality cost-effective solutions will be an integral to expanding our global presence and overall market share.

Simultaneously, we plan to selectively invest in our business to ensure we stay aligned with our customers and continue to pursue opportunities in order to maximize our return to shareholders over the long-term, With that operator, we’d now like to open the call for questions..

[Operator Instructions] And we do have a question from the line of Edwin Mok from Needham & Company..

Hi, guys. This is Arthur filling in Edwin. Thanks for taking our questions and congrats on the great quarter.

So, first question is revolving around a high level look at semi space, there has been a positive tone from your peers and your customers on sort of the uplift in the semi space, and you touched upon it in the call, but I was wondering, since we’re kind of late into the first quarter, if you could provide any sort of color on any visibility or order trends you see in the next quarter and is that sustainable for the rest of the year?.

Yes, Arthur, thanks for your question.

As we mentioned, we do see the semiconductor equipment market coming up from its low in Q4 and starting to march up, and I think that’s reflected in our numbers, and Casey, do you have anything to add to that?.

Sure. I think, the tone of the market as you indicated has certainly improved since our last call. And our largest customers, I think are seeing an upturn that we’re reflecting in our numbers as well. So we’re pretty confident that it should be a pretty solid year for us. Last year and this year we’ve talked about it being really a semi focused year.

That’s not to say that we aren’t focused at some of the other markets as well, but we were very focused as Jim came at the being a last year on the semi conductor market and that’s going to carry through into this year.

I think being in some of the fastest growing parts of that business, the semi cap equipment market, really is going to serve us well this year as you see extra dep and etch removal steps coming into the process. That’s really going to drive the business for us, and so we’re pretty excited about the year..

Great, sounds good. And then regarding Miconex, have you guys started to leverage your existing platforms to drive growth of the business.

Any kind of –sense of what type of growth rate we can look for in a flat WSC environment?.

Yes, so as we mentioned before, Miconex is in the wet chemistry space, which straddles both deposition and removal, which is the higher growth portion of the semi conductor equipment market right now. So, I think we see that portion of the market outgrowing the overall semi cap equipment spending by a significant percentage.

Look, we’re looking at the same numbers you are, Arthur. And so with that acquisition, we’re enjoying our entry into that space, which kind of furthers outpacing the semiconductor equipment market. As well as, yes, there is some leverage on our basic capabilities in all our other vertical integration that we have that plays well together.

So we see it not only as strategically helping us get into the wet chemistry space, but also it’s in the highest growth segment of the semi cap equipment market, as well as it leverages our other capabilities in the semiconductor, the vertical integration, the machining, frames, integration, and so on.

So we see it as kind of a triple positive for us..

Great, sounds good. Thanks for taking my questions..

Thank you, Arthur..

Next is from the line of Patrick Ho with Stifel Nicolaus..

Thank you very much. Casey, first-off, in terms of gross margins, it was obviously depressed due to the lower revenue levels you experienced in the fourth quarter.

What kind of revenue levels do you expect the company to get gross margins back into that 15% to 18% range?.

Yes, I think when you get up in the mid-teens, that’s a good spot to think about that, we’d be back into that range, and so, every quarter is a little different, and you don’t know exactly what the mix and everything is going to be as far as domestic versus international and also product.

But at the high-end of our range, I think, we’re going to be approaching that very quickly..

Great. And some of the new opportunities you’ve talked about on the semiconductor side, some of the integrated products that you’ve created for your leading customers, maybe qualitatively, because it’s hard to – I guess quantify.

How do you see that segment growing in 2016, particularly as your customers are also starting to ramp up some new products?.

So, Patrick, yes, I think, qualitatively that’s where we’ve been really positioning ourselves in order to be really from the very, very, very front-end, and that’s why I think we’ve seen some of our investments at the prototype stage. And as you know, some of those things take a long cycle to play out in the P&L.

But we continue to see really good traction with all the capabilities that we’ve built over the last year, and our overall strength and our overall leading bases that we have in everything else being positioned as we are in the area that’s going to benefit the most from 3D NAND, and since then we feel pretty comfortable that we’re going to continue to grow in the semiconductor space above and beyond the semi cap equipment numbers..

Great. And final question from me on the non-semiconductor side of things. I think, Casey, last earnings call you talked about, you guys are in the qualification stages in some of these new markets that you’re trying to enter.

Can you one, give us an update on how those are going? And two, when do you expect some of those qualifications “to turn into, I guess, high volume production type of wins,” which will start contributing to revenues and earnings?.

Yes, as we’ve talked about in the past, when you – this is a long sales cycle and long development cycle, and so when we start to engage in some of these other markets, it takes several quarters for us to really kind of plant the seeds and start to see some progress there.

That’s why at the beginning of 2015, we talked about over the next couple years, 2015 and 2016, it’s really going to be dominated by semi, but we are continuing to plant those seeds.

And hopefully, as we get further on in the year, we’re going to have something to talk about as far as some initial activity in some of those areas, because at that point it would have been a year to year-and-a-half, and we can start to give you some color on that.

But right now we’ve as you know, stayed fairly focused on the semi space and really tried to downplay that until we get some activity and some time to be able to have some more to talk about..

Great. Thank you very much..

You bet..

Next is from the line of Christian Schwab with Craig Capital Group..

Hey, good morning, guys. Good afternoon. So can you see in the non- semiconductor revenue side.

Should we assume that that revenue is flat, or is that going to decline on the year-over-year basis in 2016?.

I’d think about it on a quarter-by-quarter basis versus a year-over-year. Obviously, a lot of the things that we had early in last year things like ISI and some of those things were ramping out. At this point I’d say at the rate we’re at right now, we’re going to be relatively flat, and I would kind of model it that way.

It turns a little bit sometimes on some of these customers we are still doing business, so you’ll get some final buys and some other things that go on some other activity. But I think overall, I just kind of model it relatively flat to where we are..

Okay, perfect. And then on the semiconductor revenue side, your two largest customers talked about the second-half being greater than the first-half.

Did – then when we think about that should we take the implied guidance for the semiconductor revenue that you gave X what we just talked about on the non-semiconductor side, and increase that to a scale that shows semiconductor revenue having year-over-year growth, is that fair?.

It is I think you have – I think you have to look at it a little bit more granularly than that in a sense that Applied gets about a third of their business or somewhere in that zone from services and spares and the like. They tend to drive their business on a bookings basis.

But you’ve talked in reference to their revenue, they could deploy [ph]some of that revenue out of inventory, we don’t exactly know what their inventory levels are. But generally, we should track pretty closely to the Applied and Lams of the world, because those are obviously our biggest customers.

But you can’t map it exactly one-for-one, you have to put a little bit of a science to it. But we’re encouraged by what we hear them talking about and certainly that’s reflected in our growth. Second-half of the year, we probably have maybe the same visibility as they do maybe a little less, and so it’s never perfect.

But I think everybody is pretty optimistic, as the year moves on that even if you’re going to be flat for the year-on-year, that would indicate that the second-half would be pretty strong..

Okay. I was just – I thought I heard earlier in your prepared comments that you expected to grow faster than the front-end and both of your largest customers, kind of suggested flattish.

So that would be growth above and beyond flat, but you are kind of suggesting stick around flattish for now and then we’ll go from there?.

What – again I – what I’m suggesting is, I think, that we will track pretty closely to them, there’s some ins and outs. I do think at the end of the day when we get to the end of the year, when we reflect back and look at the quarters, I think you’ll see that we are growing faster overall. But I mean I need to prove that and show that.

And so I’m hoping to have those conversations with you as the quarters go on..

So, Christian, I think the caveat of growing faster than what and that’s the overall semiconductor capital equipment market.

So the numbers of the semi cap equipment markets whatever they turn out to be 32, 33, whatever for 2016 because of the segments we’re playing and we expect to have outgrow the overall semi cap equipment spend very similar to as you mentioned the top two customers who are also positioned in the higher growth areas of the semi cap equipment..

All right, yes. That’s, perfect. No other questions. Thanks..

Thanks, Christian..

And we have no more questions in queue at this time..

All right. Well, we appreciate everybody dialing in for the call and look forward to seeing you probably over the next quarter. Thanks, again. Take care..

Thank you for joining today’s conference call. You may now disconnect..