Good afternoon, ladies and gentlemen, and welcome to the Ultra Clean Technology’s Fourth Quarter and Full Year 2024 Earnings Call and Webcast. [Operator Instructions]. This call is being recorded on Monday, February 24, 2025. I would now like to turn the conference over to Rhonda Bennetto, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us this afternoon. With me today are Sheri Savage, Chief Financial Officer; and Chris Cook, President of our Products division; and Cheryl Knepfler, our VP of Marketing. Our CEO, Jim Scholhamer, is unable to join our call today as he’s suffering from a temporary flare-up in his back and sends his sincere regrets. Sheri will begin with some prepared remarks about the business and follow that with a financial review, then we’ll open up the call for questions. 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. And with that, I’d like to turn the call over to Sheri. Sheri?

Good afternoon, everyone, and thank you for joining our call today. I will begin with a brief summary of our 2024 financial and operations highlights, and then outline our thoughts on the short- and long-term state of the industry landscape. After that, I’ll provide more detailed financial review, and then we will open the call up for questions. UCT executed at every level in 2024, growing 21% over the prior year and significantly outperforming our customers, our closest competitors and the overall WFE market. Our unique and extensive suite of vertically integrated offerings, global manufacturing footprint and ability to quickly flex to meet customer demands enabled us to capitalize on several windows of opportunity throughout the year. Areas where we played an instrumental role included growth at the leading edge, driven by investments our customers made and continue to make within the artificial intelligence space through our Czech Republic site and our long established in China, for China manufacturing business, supplying domestic Chinese OEMs in country. Overall, UCT was specifically positioned with our largest customers to quickly align and support their technological road map at every turn throughout the year. As the world demands higher quantities of chips, chip manufacturers demand more and higher-quality manufacturing equipment and processes. As technology evolves, UCT is evolving with it. The drivers of our industry currently led by artificial intelligence will play a profound role in transforming economies, businesses and societies over time. We are in the dugout in the first inning of this new world in overall spend. To see mass adoption of radical new technologies, we need to see large enterprise use cases and integration at scale. AI will not affect the entire value chain equally or at the same time. UCT is in this for the long haul and will benefit…

[Operator Instructions]. Your first question comes from the line of Krish Sankar from TD Cowen. Please go ahead.

Thanks for taking the question. I have a few of them, Sheri. Number one, how much is the sales to China semi-cap customers, the MXPO [ph] techs of the world in the December quarter? And how much was it in all of calendar ‘24?

Yes. Generally, we were about 40 million for the Q4 timeframe. For the year, it was about 215 million.

215 million?

Yes.

Got it. And then obviously, some of them have been impacted by the export restrictions in December. Is that factored into your guidance? And if you didn’t have that restriction, what is March quarter guidance have been?

No, that wasn’t really factored in at this point. But I’m going to turn it over to Chris Cook to answer a little bit more about China.

Yes. Thanks, Krish. Chris Cook here. Yes, I mean we have not factored that in. We’ve seen a very strong 2024 up through the end of Q3, then we started seeing softness in Q4 that extends through kind of the first half of the year of 2025.

But just to clarify, the softness and digestion you’re talking about is more with your China semiconductor customers, not your semi-cap customers, right?

The semi-cap customers, there was a combination of two factors. I think the -- we have a customer in particular that continues to have ramp issues at one of their large customers. But in addition to that, we see overall kind of softening in demand, partially due to just kind of organic demand and also some build-up in inventory that is well known to have occurred through 2024. We expect to see some recovery in the second half of the year as we work through both those issues and start to get more visibility into greater demand.

Got you. And then just one last question, Chris. Just wanted to check. So obviously, in December, we had that export control restrictions and some of your China semi-cap customers were on the entity list. So I was assuming you cannot ship to them. But are you telling you’re still shipping to them? I’m just trying to wonder if there is a risk to that 215 million that you did last year when you go into 2025.

No, we’re not affected by that. Of course, as you can imagine, we’re all over those developments, but they did not impact our shipments just given our footprint and how we manufacture and deliver those products locally in China.

Yes, Krish, I’ll add on a little bit. We’ve done extensive analysis surrounding our export control, and our shipments within China are encapsulated within China and with the manufacturing and engineering happening in China. So there’s no back and forth between the U.S. and China at this point. So as a result, that has allowed us to continue to ship to those specific customers.

Got it. All right. Thanks, Sheri.

Thanks, Krish.

Your next question comes from the line of Charles Shi from Needham. Please go ahead.

Hi, good afternoon. I think so far, I heard the -- probably three dependent issues related to China for China business. One, a little bit customer specific. It seems like one customer has some qualification ramp issues. Two, you also mentioned that there seems to be some softening of the China demand. But three, I think you said that there is a little bit of inventory excess that your Chinese customers are carrying right now. But the third one, I’m not exactly surprised because you guys were pretty transparent last year by saying you thought that some of the customers may be doing a little bit of stockpiling. But can you kind of rank order, I mean, among the top 3, which one are the ones that are causing most of the near-term air pockets? And really just want to understand relative to, let’s say, a quarter ago, what has changed?

Yes. So in -- by the way, thank you, Charles. This is Chris Cook. And I would rank those in order as you described them, actually, the customer-specific ramp issue that we expect to be resolved in the second quarter was a hit, followed by a blend of the inventory and demand corrections that we see. Obviously, to the extent that our customers burn through that local inventory that shows up in reduced demand for us and excess inventory burn. So it’s a combination of those 3 in that order.

Got it. So let’s say, if we take out that China for China business, what would the guidance be like, I mean, for the ex-China business from Q4 into Q1? Do you still see sequential growth? Or what’s the picture there?

I would say we’re not growing sequentially. We’re off. And as we expect those things to be resolved, we do expect for recovery in the second half, but we’ll continue to see softness through the first half of the year.

No. Chris, I meant the ex-China business, the non-China business, I was trying to ask, yes, from Q4 to Q1. What’s embedded in your guidance? Are you -- sequential growth?

Yes, sorry, I misunderstood the question. Yes, we’re flattish.

Okay. Maybe last one for me. The gross margin for Q4 and seems like the implied gross margin guidance in Q1. Obviously, you don’t really guide gross margin. I heard you talk about product versus service mix seems like a little bit lighter than you thought. But the product gross margin alone looks like a little bit lighter as well. What’s the reason for that, the gross margin -- the weakness in the Products division?

Hi Charles. Yes, really, the key thing is the mix of the products that got shipped and where they got shipped from. So obviously, with China being a little bit lower, we started to see that in Q4, and that’s a high-margin business. We also saw some of our other higher-margin products be a little bit lighter for the quarter. So also being at year-end, we did have some additional expenses surrounding just truing up some of our inventory and things like that. So that’s what really affected it. We see it somewhat flat going into Q1. And we will continue to be looking at our cost structure with a close eye and make sure that we continue to help that as we move through the year as well.

All right. Thank you.

The next question comes from the line of Christian Schwab from Craig-Hallum Capital Group. Please go ahead.

Great, thanks. Sheri, I think you kind of implied -- anyway, so second half is stronger than the first half, but you kind of implied kind of flattish type of revenue. I didn’t know if you’re applying for the year. So if we kind of take flattish revenue in the first half and kick it -- picking up in the second half, are you assuming then that revenue year-over-year ‘24 to ‘25 then is flattish? Is that what you were trying to say?

No. I think we’re assuming right now that the first half is somewhat flat. We obviously don’t have a crystal ball and don’t know the second half. But I think we’re basing it on everything else that everybody else is putting out there that hopefully, the second half is a little bit higher. But obviously, we’ll continue to track that quite closely and look at our cost structure as we move through that. But for now, we think the first half is going to be somewhat flat.

Okay. And then as far as like the AI growth drivers that you mentioned, is there one segment or another inside that value chain that is more important to you, where you have design wins with leading customers in the United States that would more positively impact your revenue versus, say, growth in another? In other words, is leading foundry logic node shrink a big deal? Is NAND high-bandwidth memory, etcetera? Is there -- what should we be monitoring to see if it shows up in your business, if it shows up elsewhere?

Hi Christian, this is Cheryl. Obviously, we’ve seen a benefit from the high-bandwidth memory, both from the packaging side as well as from the expansion in DRAM. So we continue to see that as a contributor, and we also see the transition for gate-all-around and the transition to 2-nanometer as a benefit to us as well as those higher deposition and etch than the previous node.

Great, perfect. No other questions. Thank you.

Your last question comes from the line of Edward Yang from Oppenheimer. Please go ahead.

Sheri, you mentioned a comment about balance sheet alternatives. I was wondering if you could clarify that.

Yes. We’re just -- obviously, the market has been pretty open with being -- remaining open from a debt and equity perspective for us in general. But we are continuing to look at our capital structure. We want to have flexibility with our working capital, obviously, making other M&A potentials in the future and increasing our cash flow through lower interest rates. So we’re just really taking a look at different options just to be able to add more to our balance sheet as well as for our shareholders to have more EPS going through. So we’re just taking a look at the options.

Okay. And on China, you mentioned for the year it was $215 million of revenue, so back into $44 million of fourth quarter revenue for your China for China business. Is that the sustainable run rate that you see for the first half? Or were you exiting at a lower run rate than that $44 million you saw in the fourth quarter?

Yes. We see it being a little bit lower going into Q1 and staying somewhat flat there for Q1, Q2. And as Chris mentioned, it would hopefully recover somewhat in the second half, maybe not to the peak levels that we saw, but seeing it going back up in Q3, Q4.

Okay. And just final question. Back in January, you updated your view on WFE growth and was looking to outperform that by about 5% to 10%. And so has that changed? What’s your updated WFE? And what would the range of outperformance be at this point?

So for WFE at this point, we’re looking at about five points of growth in 2025, and we are looking to outperform. Obviously, last year, we outperformed quite a bit. So with potentially having a little bit pulled in with the upheavals in the U.S., we may see a little bit of balancing of that across the two years. So we will continue to look at that. Our target is to outperform by 5% to 10%. We certainly believe that’s a possibility, but we will continue to have to monitor what the mix is across the various products.

All right. Thank you.

There are no further questions at this time. I’d like to turn the call over to Sheri Savage for closing remarks. Ma’am, please go ahead.

Thank you, everyone, for joining us today. We will talk to you again next quarter. Thanks a lot.

This concludes today’s conference call. Thank you very much for your participation. You may now disconnect.