0:07 Good afternoon and welcome to the Ultra Clean Fourth Quarter and Full Year 2021 Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions.. [Operator Instructions] Please note, this event is being recorded. 0:38 I would now like to turn the conference over to Rhonda Bennetto, Investor Relations. Please go ahead.

0:44 Thank you operator. Good afternoon everyone and thank you for joining us. With me today are Jim Scholhamer, Chief Executive Officer and Sheri Savage, Chief Financial Officer. Jim will begin with some prepared remarks about the business and Sheri will follow with a financial review and then we will open up the call for questions. 1:01 Today's call contains forward-looking statements that are subject to risks and uncertainties. For more information, please refer to the Risk Factors section in our SEC filings. All forward-looking statements are based on estimates, projections and assumptions as of today and we assume no obligation to update them after this call. Discussion of our financial results will be presented on a non-GAAP basis. A reconciliation of GAAP to non-GAAP can be found in today's press release posted on our website. 1:28 And with that, I would like to turn the call over to Jim. Jim?

1:32 Thank you Rhonda and thank you all for joining us today. I am going to start with brief review of our fourth quarter and full year results and then provide an update on current events and conclude with our thoughts on why we believe 2022 will be another year of growth for the WFE market. Following that, I'll turn the call over to Sheri for a financial review and then we'll open up the call for questions. 2:02 With intense industry demand as a tailwind and UCT executing at peak levels, we exited 2021 with record financial results. Global revenue for the fourth quarter grew 66% compared to the same period last year and rose by more than 50% for the year compared to 2020. Fourth quarter earnings per share grew 50% when compared to the same period a year ago and 50% for the full year of 2020. 2:35 UCT consistently outperforms the markets we serve and outpaces the majority of companies supporting the WFE system. These results are extraordinary given the challenging business conditions built around the world over the past two years. I want to again thank each of our 7,000 plus employees for their contributions to our success. Responding together as a team, leveraging our global footprint and talent pool and optimizing our operations. We were able to skilfully navigate many obstacles and adapt quickly to the operational complexities associated with the pandemic, including global supply chain challenges. 3:22 Recently, the Omicron surge placed additional pressure on an already strained supply chain and labor force. We are actively collaborating with our customers and suppliers, including qualifying new suppliers to maximize our output capability and meet our customer’s delivery schedules. UCT’s global footprint enables us to leverage economies of scale and our procurement teams have found…

7:54 Thanks, Jim. And good afternoon, everyone. Thanks for joining us. In today's discussion, I will be referring to non-GAAP numbers only. I am very pleased to report total revenue for the fourth quarter was up 11% over the prior quarter to $615.1 million. Our Products Division grew 10.8% to 533.9 million, which includes Ham-Let revenue of $64.9 million. Our services division rose 13.4% to $81.3 million due to increased sales across a number of customers. Increased demand throughout 2021 resulted in total record revenue of $2.1 billion of 50.3% from the prior year. Products generated revenue of $1.8 billion, up 59.5% year-over-year, and includes $187.5 million from three quarters of Hamlet revenue contribution. 8:58 Services contributed to $297.7 million, growing 11.3% over the prior year. Going forward we will be including revenue from Ham-Let in our products division financial reporting. Total gross margin for the fourth quarter was 21.5% in line with our newly updated model, compared to 21.6% last quarter. Products gross margin was 19.1%, compared to 19.3% last quarter, and services was 37.1%, compared to 36.9% last quarter. 9:38 Margins can be influenced by customer concentration, geography, product mix and volume, so there will be variances quarter-to-quarter. Total gross margin for the year was 21.4%, the same as the prior year. Operating expense for the quarter was $54.6 million compared with $50.9 million in Q3. As a percentage of revenue, operating expense declined slightly to 8.9% compared to 9.2% in the prior quarter. 10:13 For the year, with revenue up 50.3%, operating expense as a percentage of revenue declined to 9.2% compared to 10.1% in the prior year. Total operating margin for the quarter improved to 12.6% compared to 12.4% in the third quarter, also in line with our newly published model. Margin from our products division…

13:31 We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Quinn Bolton with Needham & Company. Please go ahead.

14:05 Hi guys, congratulations on the nice fourth quarter results and full year '21 results as well. I wanted to ask, obviously, the entire industry has faced tougher supply chain conditions in the near term. Some of that's component availability. Some of it is Omicron. Looks like you faced some of that as well. Wondering if you might be able to quantify it for us how much revenue might have been affected in both the fourth quarter as well as potentially in the first quarter guidance from some of those supply chain effects?

14:44 Yes. Thanks, Quinn. I think if I recall, in the fourth quarter, I think demand outstripped our what we could ship and also what our customers could take because of their issues as well by about roughly, I think, $30 million. As we look forward in the first quarter, especially with the Omicron spike that we saw and continued supply chain issues, I think we're looking at more like a $40 million bogey in the first quarter. So I think things got a little worse for the first quarter, but part of that was because of the big spike in the Omicron cases. So we think it should start to stabilize, maybe flat now or maybe even improve a little bit in the second quarter.

15:33 Okay. And that's the effect of supply versus demand that you're referring to rather than total revenue?

15:41 Yes. I think in other words, if our customers could have taken it or if we had been able to get the parts, then those are the kind of -- that was kind of the overhang, the $30 million and the $40 million number. So it affected everybody, as you know. So yes, that's the plan.

16:04 The second question I have, just sort of a longer-term outlook. I know you're only giving formal guidance for the first quarter, but I think most companies in the industry certainly reflecting the current supply chain constraints sort of see WFE and revenue is sort of, being a little bit more back-half weighted than front-half weighted. Is there any reason to think that UCT would see a different pattern or should we think you guys are expecting sort of a back-half loaded year as well?

16:36 No. I think we're expecting exactly the same path. We -- if you recall a quarter or two ago, we were concerned about the second half. We knew the first half was really strong. And I think in the last three to four months, what we've seen is that we expect the back half of this year to actually continue to move up. Obviously, we'll have to keep growing our capacities and keep meeting the needs. But yes, we expect UCT will perform continually gradually moving up from here.

17:14 Great. Thank you, Jim.

17:16 Thanks, Quinn.

17:17 The next question is from Tom Diffely with D.A. Davidson. Please go ahead.

17:23 Yes, good afternoon. Thanks for the question. Yeah, I guess, first on the guided range, the wider-than-normal guided range. Is that basically conservatism because of the environment we're in? Are there specific issues that you're dealing with right now that caused you to be more heightened concern about things flowing through?

17:45 Well, a couple of things we've seen is the dynamics changed a little bit where we were chasing 10% of the parts. And now we're chasing more like 1% or 2% or 3% of the parts, but that -- unless you have them all, you're in the same boat. And I think we've also seen some reshuffling of when our customers are able to take the product because of their supply chain issues as well. So that caused more uncertainty. So the demand is there. I feel very confident in our ability to execute and to close on that gap to some extent. But there's still a lot of unknowns that are kind of out of our hands.

18:31 Okay, that makes sense. And then, Jim, when you look at capacity expansion over the next several quarters, for you, is it more of a labor issue, a tooling issue or the supply chain issues continuing?

18:46 Yes, I think a big part of the capacity expansion in the next few quarters is predicated on Malaysia continuing to ramp up. as we move beyond that to three or four quarters out into next year, we're also expanding some of our U.S. sites a bit to more capacity. So -- but in the short term, to your question, I think we feel that we'll be able to keep ramping with the industry, and a lot of that is going to fall on Malaysia's brand.

19:23 Okay, great. And then final question. When do you look at the variability of the margins in your guidance, that product based at all or is it strictly just volume or overhead absorption?

19:38 I would say it's volume and mix based. So it's just depends -- obviously, it changes quarter-to-quarter, depending upon what we're going to ship and from where and from what business unit. So the volatility is really surrounding that as well as what point we are within the cycle. As we tend to go up, we tend to have higher margins. And as things potentially come down, it tends to be -- take a little longer to get costs out. So it tends to be a little bit lower. But generally, there's many factors that go into it.

20:11 Okay, well, thank you both for the questions today.

20:13 Thank you, Tom.

20:16 Thank you.

20:16 The next question is from Patrick Ho with Stifel. Please go ahead.

20:19 Thank you very much. And Congrats on a nice year in 2021. Jim, maybe first for you. In terms of the services business, how much capacity do you need to expand to serve not only Intel for that announcement, but for some of your other customers that are growing it? You've talked a lot about capacity expansion, particularly for your products business group. Can you just give a little bit of color of the types of expansion plans for the services business?

20:50 Yes. We've -- good question, Patrick. Thank you. We definitely -- we have been proactively expanding our joint venture signoff has been expanding -- if you recall from the fire when we first bought the business, when one of the buildings came down, we kind of built that out to really grow Samsung. So that's kind of in place. With Intel, there will be a new greenfield site in Ireland that we're working on that come up maybe next year. And then we're doing more kind of incremental expansion of capability in some of our existing sites like in Arizona, for example. So I think there's incremental as we go. So it's definitely something that we can manage or we've already kind of -- those things take -- those things that are longer kind of runway. So we're working hand-in-hand with the chip makers as they put in new fabs or they expand their fabs. We work hand-in-hand to expand our capacity either to put a new fab next to where they are going to be or to add capacity, but it's a longer runway. So we have those pretty well in hand.

22:11 Great. And maybe as my follow-up question on the product side of the business. One thing we're seeing a lot more, at least with chip makers and equipment companies is more collaboration, more joint programs to work on next-generation devices. On the OEM side of things, can you discuss or maybe give a little bit of color of your increased collaborative investments with your customers and maybe how you can add even more value to them and in the long run, enhance your gross margin profile?

22:43 Yes, sure. Obviously, I have to speak a little bit generically on this, but we've definitely embedded a significant amount of engineers to actually sit on the sites of not only our major customers, but some of the customers that were really trying to grow, for example, one litho customer. And so we definitely have -- we've always had that presence we've always been there for DFM, design for manufacturing, but I think we're seeing our scope expand like you mentioned. And that's something that if you look at our OpEx line, if you look at R&D line, you've probably seen that creep up over time and a part of that is due to that. So -- and absolutely, I think it obviously can improve the margin because you come out of the gate as the supplier. There's not as much pressure competitive pressure. And it also keeps obviously helps with share gain when you come out of a new product introduction as the partner suppliers, as you know. So I think it has multiple effects to really be involved from the very beginning through product launch and then ramping up through to high volume. And I think another factor too is we can do that in so many different places. We're still globally expansive that we can bring it up wherever we need to close to where the engineers are and our customers, and then we can transition it over to our high-volume manufacturing in Singapore, China or now Malaysia to really ramp it up. And so it's something our customers really value.

24:25 Great thank you very much.

24:28 Thank you, Patrick.

24:33 [Operator Instructions] The next question is increased Christian Schwab with Craig-Hallum. Please go ahead.

24:40 Hi, this is Robert Mertens, on behalf of Chris, thanks for taking my question. I guess first on the supply chain. Are there any areas that are particularly challenging, whether it's acquiring components or your own ability to ship product logistics? And I guess, is there a way to further quantify this $40 million headwind in the March quarter? And then I guess, how should we think about the costs associated with the gross margin impact from the qualification of new suppliers.

25:17 So I'll answer the second one first because that's easy. There's no significant cost of bringing on qualifying new suppliers, it's pretty negligible and it's often funded. But the first part, it's really hard to say. I mean, obviously, things that have computer chips and at the lower end chips have been really challenging. There's some specialty machine parts and specialty components, which are specked into the tools and sole-sourced by our customers sometimes or by ourselves. And those -- it could be the one half here and one half there. It's really hard to say this is a big problem or that's a big problem. Every few weeks, it kind of moves around like a whack-a-mole game. But I think anything that has a lower-end computer chip is always challenging. And anything that changed circuit boards with that is often very challenging. And as well as I mentioned, some specialty machines components or actually there's a shortage of the components that fluid solutions makes the valves, connectors and things like that there's an overall shortage in the market as well. So it's many, many different areas. Hard to put a finger on it, which is why we're being relatively broad in our range for the first quarter.

26:52 Great. And then just a quick one on the Ham-Let. Just to make sure I heard correctly. Did you say that was about $65 million in the quarter and then was there any color given on the business margins or expectations in the March quarter?

27:10 Yes, it was $64.9 million. No, we're not providing margin guidance on that, but they are definitely falling into our products 8% to 10% -- 8% to 13% operating margin that we have put out in our new model. So we have brought them up into that range as part of, obviously, the acquisition and working with them on their cost structure and their expanded revenue that they've had.

27:41 Okay. All right. Well, thank you so much. That's all I had.

27:46 Thanks so much.

27:48 Thanks, Robert.

27:48 This concludes our question and answer session. I would like to turn the conference back over to Scholhamer for any closing remarks.

27:56 Thank you all for attending. We remain very optimistic, very proud of what we've done this last quarter, that year and going forward. And we look forward to talking to you again in April. Thank you very much.

28:09 The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.