Ultra Clean (UCTT) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's analysis for the reported period ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and comprehensive income, showing significant year-over-year growth Condensed Consolidated Balance Sheets This section provides a summary of the company's financial position, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | Sep 25, 2020 | Dec 27, 2019 | | :--- | :--- | :--- | | Total Current Assets | $514.1 | $467.0 | | Cash and cash equivalents | $176.1 | $162.5 | | Accounts receivable, net | $145.5 | $112.7 | | Inventories | $175.3 | $172.4 | | Total Assets | $1,060.3 | $1,019.3 | | Total Current Liabilities | $195.3 | $210.6 | | Total Liabilities | $541.8 | $566.8 | | Total Equity | $518.5 | $452.5 | Condensed Consolidated Statements of Operations This section outlines the company's financial performance over specific periods, detailing revenues, expenses, and net income Statement of Operations Highlights (in millions, except per share amounts) | Metric | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $363.3 | $254.3 | $1,029.0 | $779.8 | | Gross Profit | $74.6 | $47.5 | $214.2 | $140.5 | | Income from Operations | $34.9 | $8.3 | $88.3 | $25.5 | | Net Income attributable to UCT | $24.4 | $0.5 | $55.1 | $0.9 | | Diluted EPS | $0.59 | $0.01 | $1.35 | $0.02 | Condensed Consolidated Statements of Cash Flows This section presents the cash inflows and outflows from operating, investing, and financing activities for the reported periods Cash Flow Summary for Nine Months Ended (in millions) | Cash Flow Activity | Sep 25, 2020 | Sep 27, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $52.9 | $89.1 | | Net cash used in investing activities | ($19.9) | ($39.8) | | Net cash used in financing activities | ($18.6) | ($31.3) | | Net increase in cash and cash equivalents | $13.6 | $14.6 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements, including segment and geographic data - The company operates in two segments: Semiconductor Products and Solutions (SPS) and Semiconductor Services Business (SSB)[20] - Two major customers, Lam Research Corporation and Applied Materials, Inc., accounted for 68.1% of total revenues in Q3 2020 and 67.3% in the first nine months of 2020[31] Revenue by Geographic Area (in millions) | Region | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | United States | $155.6 | $136.1 | $453.3 | $406.4 | | Singapore | $132.2 | $68.1 | $364.0 | $212.3 | | South Korea | $21.1 | $15.6 | $62.7 | $51.7 | | Other | $54.4 | $34.5 | $149.0 | $109.4 | | Total | $363.3 | $254.3 | $1,029.0 | $779.8 | Segment Data (in millions) | Metric | Segment | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | SPS | $294.4 | $200.0 | $831.7 | $610.6 | | | SSB | $68.9 | $54.3 | $197.3 | $169.2 | | Gross Profit | SPS | $50.8 | $29.9 | $144.1 | $84.9 | | | SSB | $23.8 | $17.6 | $70.1 | $55.6 | | Operating Profit | SPS | $27.4 | $7.4 | $72.0 | $18.1 | | | SSB | $7.5 | $0.9 | $16.3 | $7.4 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, noting a 42.9% revenue increase in Q3 2020 driven by semiconductor demand, improved gross margin, and strong liquidity with $176.1 million in cash Results of Operations This section analyzes the company's operational performance, detailing revenue, gross margin, and expense trends across segments Revenue by Segment (in millions) | Segment | Q3 2020 | Q3 2019 | % Change | Nine Months 2020 | Nine Months 2019 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | SPS | $294.4 | $200.0 | 47.2% | $831.7 | $610.6 | 36.2% | | SSB | $68.9 | $54.3 | 26.9% | $197.3 | $169.2 | 16.6% | | Total | $363.3 | $254.3 | 42.9% | $1,029.0 | $780.0 | 32.0% | - Revenue growth in both SPS and SSB segments was primarily attributed to increased customer demand in the semiconductor industry, particularly in wafer fabrication equipment[128] Gross Margin by Segment | Segment | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | SPS | 17.3% | 15.0% | 17.3% | 13.9% | | SSB | 34.5% | 32.4% | 35.5% | 32.9% | | Total Company | 20.5% | 18.7% | 20.8% | 18.0% | - General and administrative expenses increased by 11.6% for the nine months ended September 25, 2020, due to DMS expenses, higher professional fees, increased personnel costs, and restructuring expenses[137] Liquidity and Capital Resources This section assesses the company's ability to meet its short-term and long-term financial obligations, including cash position and debt - As of September 25, 2020, the company had cash and cash equivalents of $176.1 million, an increase of $13.6 million from December 27, 2019[147][148] - Net cash from operating activities for the first nine months of 2020 was $52.9 million, a decrease from $89.1 million in the same period of 2019, primarily due to changes in operating assets and liabilities, including a $32.7 million increase in accounts receivable[147][148] - Total bank debt was $280.1 million as of September 25, 2020, net of unamortized debt issuance costs, with the company in compliance with all financial covenants[157][162] Contractual Obligations as of September 25, 2020 (in millions) | Obligation | Total | 2020 | 2021 - 2022 | 2023 - 2024 | Beyond | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating leases | $47.8 | $3.7 | $22.6 | $12.3 | $9.2 | | Borrowing arrangements | $288.4 | $2.8 | $17.5 | $17.5 | $250.6 | | Common stock purchase obligation | $8.2 | — | $8.2 | — | — | | Purchase order commitments | $179.4 | $179.4 | — | — | — | | Total | $523.8 | $185.9 | $48.3 | $29.8 | $259.8 | Quantitative and Qualitative Disclosures About Market Risk No significant changes to quantitative and qualitative market risk disclosures were reported compared to the prior fiscal year's Annual Report on Form 10-K - There were no significant changes to market risk disclosures during the reporting period[166] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to material weaknesses in internal control over financial reporting within the SSB segment, with a remediation plan underway - The CEO and CFO concluded that disclosure controls and procedures were not effective as of September 25, 2020[167] - The ineffectiveness is due to material weaknesses in the internal control over financial reporting within the Semiconductor Services Business (SSB) segment, stemming from the 2018 acquisition of Quantum Global Technologies, LLC[169] - A remediation plan is in progress, which includes assessing business cycles, strengthening IT controls, enhancing monitoring procedures, and implementing a new ERP system for the SSB segment[170][172][175] PART II. OTHER INFORMATION This section covers other essential information, including legal proceedings, updated risk factors, equity sales, and a list of filed exhibits Legal Proceedings The company is involved in various legal proceedings but does not anticipate any material adverse effects on its financial condition or operations - The company does not expect any current legal proceedings to have a significant adverse effect on its financial condition, results of operations, or cash flows[177] Risk Factors Risk factors are updated to include the ongoing COVID-19 pandemic and a cybersecurity incident, neither of which is expected to have a material adverse effect - The company's risk factors are updated to reflect the ongoing global COVID-19 pandemic, noting that while operations have continued as "essential critical infrastructure," the future impact remains highly unpredictable[178] - In August 2020, a third party gained unauthorized access to some company data, including information for fewer than 6,000 current and former employees, with no anticipated material adverse effect on the business[180] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period - None[181] Exhibits This section lists the exhibits filed with the quarterly report, including CEO and CFO certifications and Inline XBRL documents - The exhibits filed with the Form 10-Q include certifications from the CEO and CFO as required by the Sarbanes-Oxley Act of 2002[185]