Ultra Clean Holdings, Inc. Q2 FY2025 earnings call

Key areas of focus include new product introduction with customers, with new business in Czech Republic facility expected to boost Q4 revenue; flattening organization to improve efficiency, with workforce reductions and OpEx reduction in Q2; integrating business systems and acquisitions, including implementing SAP in Fluid Solutions Group, streamlining Services Group organization, and optimizing HIS business; tariffs remain uncertain with some cost increases in supply chain; CEO search nearing completion.

Total revenue for Q2 2025 was $518.8 million. Revenue from products was $454.9 million, accounting for approximately 87.7% of total revenue, and services revenue was $63.9 million, making up about 12.3% of total revenue. Product gross margin was 14.4% and services gross margin was 29.9%. Total gross margin was 16.3%.

Projected Q3 2025 revenue between $480 million and $530 million, EPS $0.14 to $0.34. Cautiously optimistic about Q4 with potential upward bias from new business wins, China business, and services revenue.

Uncertainty around tariffs with some cost increases and customers not yet paying for additional costs; potential political risks affecting China business; inventory lag effect on component sales.

Q: Yu Shi asked about Q2 revenue exceeding midpoint of guidance, Clarence said upside from China, U.S. site shipments, and services revenue.

A: Clarence L. Granger: Well, we had a little bit of upside from China. That was helpful. I'm trying to think of what other areas. We did have some general increase in shipments from one of our U.S. sites, our Austin site. We also had an increase in our services revenue. I think those are the major areas where we had increases.

Q: Krish Sankar asked about China business and tariffs, Cheryl and Clarence responded.

A: Cheryl Knepfler: So yes, I mean, obviously, there's always a risk that it could go forward at a different level. But at this point, we do see that the areas that we're selling to are being supported broadly for multiple parts of the industry, and so do expect to be able to continue to sell for the upcoming period. Clarence L. Granger: That's correct. We have not heard anything about potential caps. We're pretty optimistic. Don't forget, we've been there for 20 years. So it's not like we're newbies to the country. And our customers, our major customers, some of them have actually been customers of ours for 20 years. So we're very confident in our relationship there. And so far, we're very confident in what's going on with the government situation relative to us.

Q: Christian Schwab asked about WFE in 2026 and growth, Cheryl responded.

A: Cheryl Knepfler: So this is Cheryl. As we look at WFE in 2026, there are a number of fabs that are expected to come online, some of which are being pulled in from 2027 into 2026. So we do see the opportunity for 2026 to have incremental growth from 2025. At this point, not certain the level, but certainly possible for high single-digit, low double-digit type of growth.

Q: Edward Yang asked about ranking items for Q4, Clarence responded.

A: Clarence L. Granger: Well, the new business win is the most tangible one that we can tie to real near-term市场 gains. We actually have orders going forward. So we're confident in that. The China situation, I would say we feel pretty confident, but that could change, obviously. I guess probably the thing that still remains the most frustrating for me is the darn tariff situation. It doesn't feel like it's going to be a huge cost to us. This last quarter, it looked like about $500,000 in the quarter. But our customers took about $3 million -- we incurred about $3 million worth of tariff charges associated with the quarter. And we've been paid by the customers about $300,000 and they claim they're going to pay us another $2 million, but we haven't got it yet. And so I guess that causes us to be a little concerned, although we've gotten verbal commits from them. I forgot what was the other one that you -- oh AI. Honestly, Cheryl, AI is -- that's a little distant from us. I mean we certainly know about it and hear about it, and it should have a favorable impact on us, but we don't have specific orders tied to that right now.

Q: Krish Sankar asked again about China revenue and inventory, Cheryl responded.

A: Cheryl Knepfler: So this is Cheryl. I think there's probably a little bit left, but I don't think that it's significant at this point. I think our largest customer was the one that we had the most exposure with. They are continuing to work down that inventory in part by sending it back to us to be reconfigured. So we do see that happening. So I think they are now getting to a point where they don't have very much and it may not align with what some of their current shipment demand is. So we do see that certainly cleaning up a lot more. But obviously, everyone will periodically find a series of things stuck in a corner. So I think that's kind of where we are now versus a broad amount of inventory that's sitting.