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Ultra Clean Holdings (UCTT) Q4 Earnings Down Y/Y, Revenues Up

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Ultra Clean Holdings, Inc. (UCTT - Free Report) reported fourth-quarter 2018 adjusted earnings of 23 cents per share, which missed the Zacks Consensus Estimate by 3 cents. The figure also plunged 61% year over year.

However, revenues of $257.4 million increased 3.4% from the year-ago quarter. Notably, the top line benefited from the acquisition of Quantum Global Technologies, which Ultra Clean Holdings had acquired in second-quarter 2018.

Ultra Clean Holdings, Inc. Price, Consensus and EPS Surprise

Ultra Clean Holdings, Inc. Price, Consensus and EPS Surprise | Ultra Clean Holdings, Inc. Quote

Quarter Details

Semiconductor revenues (93% of total revenues) were $239.7 million, of which revenues from Quantum were $58.4 million. Semiconductor business experienced softness owing to economic slowdown, especially in China and low demand for memory chips. The softness is expected to continue in 2019 on the back of low demand and spending levels.

Non-semiconductor business (7% of total revenues) revenues were $17.8 million. Notably, displays contributed to about half of non-semiconductor revenues. However, Ultra Clean Holdings expects display equipment spending to be soft in the near term.

In the reported quarter, inventory levels decreased $12.5 million.

Operating Details

Ultra Clean Holdings’ non-GAAP gross profit increased 9% to $48.1 million. Non-GAAP gross margin for the quarter was 18.7%, up 100 basis points (bps) year over year due to growth in high-margin service business.

Research and development and sales and marketing expenses increased 24.4% and 36.6% year over year to $4.06 million and $5 million respectively. General and administrative expense surged 75.9% year over year to $26.7 million.

Non-GAAP operating income plunged 29.8% year over year to $16.6 million and non-GAAP operating margin contracted 310 bps year over year to 6.5%.

Balance Sheet & Cash Flow

Ultra Clean Holdings exited the quarter with cash and cash equivalents of $144.1 million compared with $160.3 million as of Sep 30, 2018. The decrease was due to debt payment related to Quantum acquisition.

Long-term debt was $28.5 million compared with $23.4 million as of Sep 30, 2018.

As of Dec 31, 2018, cash from operating activities was $45.4 million compared with $48.9 million in the year-ago period.

Guidance

First-Quarter 2019

Ultra Clean Holdings expects revenues in the range of $230-250 million. On a GAAP basis, the bottom line is expected to be in the range of loss of 3 cents to income of 7 cents. Non-GAAP earnings per share are anticipated in the range of 9-19 cents. The company expects softness in its semiconductor products and solutions business.

2019

Quantum is anticipated to grow in mid to high single digits although wafer fab equipment (WFE) spending may decline. Ultra Clean Holdings expects non-memory segment to increase slightly in 2019. Additionally, the company is undertaking cost improvement initiatives to aid profitability especially amid low demand.

Moreover, Ultra Clean Holdings is restructuring its business to improve profitability. Notably, cost savings after restructuring are anticipated to be in the range of $15-$20 million. Further, post restructuring, the company will have same/improved capacity to support any increase in WFE spending.

Ultra Clean Holdings expects semiconductor industry to benefit from rising demand for wearable devices, cloud computing, home and industrial automation system and Internet connected devices to name a few.

However, increasing inventory in both NAND and DRAM is likely due to weakness within the memory segment. The company expects the inventory levels to reach normality by 2020.

Zacks Rank & Stocks to Consider

Currently, Ultra Clean Holdings carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader technology sector include Square, Inc. (SQ - Free Report) , Momo Inc. (MOMO - Free Report) and Akamai Technologies, Inc. (AKAM - Free Report) . All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Square, Momo and Akamai is projected to be 25%, 24% and 14.7%, respectively.

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