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Ultra Clean Holdings Inc (NASDAQ:UCTT)
Q2 2020 Earnings Call
Jul 31, 2020, 8:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon and welcome to the Ultra Clean Second Quarter Conference Call and Webcast. 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.

I would now like to turn the conference over to Rhonda Bennetto, Investor Relations. Please go ahead.

Rhonda Bennetto -- Vice President Investor Relations

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 the financial review, and 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 factor disclosure 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 Jim. Jim?

Jim Scholhamer -- Chief Executive Officer

Thank you, Rhonda and good afternoon, everyone. Thank you for joining us. I want to start this call today by sincerely thanking everyone of our 4,700 employees around the world for their commitment, flexibility and cooperation during this unprecedented situation. The relentless drive to succeed of our entire workforce resulted in record revenues and profitability in the second quarter, clearly demonstrating the strength and resiliency of our business model. Ongoing demand, driven primarily by foundry and logic resulted in revenue from our Products businesses exceeding our expectations. The recovery in wafer starts drove our service business revenue to new quarterly highs. These higher volumes coupled with a focus on operational efficiencies and a favorable product mix spurred profitability to levels not previously seen.

The pandemic has prompted companies everywhere to realign how they do business and UCT has risen to the challenge across the board. I continue to be impressed by the ingenuity and innovative ways everyone pulled together to ensure business continuity while working safely and productively. Our business continuity team has done an extraordinary job and remains in a heightened state of readiness as some countries grapple with the second wave of the virus and others struggle to contain the first wave. Every safety protocol outlined in our BCP playbook remains in place at each site. All UCT facilities remain operational and we are grateful that we have had no known employee-to-employee transfers of the virus. We remain thankful to everyone on the front-lines fighting this pandemic and look forward to a day when the virus is contained.

We are working closely with our customers to meet their needs and we'll continue to leverage our global footprint and optimize our supply chain to ensure our customer success. The supply chain is a critical part of our business and operations and I would like to thank our suppliers for their diligence, which enabled us to deliver on time. We are dedicated to continuous improvements in a high performance culture and have been evolving our procurement and supply chain functions. Supply chain resiliency is about more than speed of operation and just-in-time delivery, which is why we are proud to be partnering with Applied Materials in their SuCCESS2030 Sustainability Initiative announced during SEMICON last week. The 10-year program aims to optimize material and part selection, procurement, packaging, warehousing, transportation and recycling to reduce energy and emissions and conserve resources. The project also aims to promote ethics, human rights, diversity and inclusion throughout the supply chain. We recognize we have a shared responsibility as environmental stewards, and we thank Applied Materials for leading this effort. We believe we can drive progress on social and environmental issues, while improving our efficiency and effectiveness as part of our overall growth strategy.

On that note, and in response to customer demand, I'm excited to announce that we are extending our global footprint into Malaysia. Having operations in close proximity to our customers and suppliers in the region will help expedite our growth plans. Leasehold improvements on the 340,000 square foot state-of-the-art facility in Penang are scheduled to begin in the fourth quarter this year with initial production slated for the second half of 2021. The facility will increase our total capacity by approximately 50%, improve our cost profile and position us well for share expansion as the industry continues to grow.

For the third quarter, we expect demand to remain around the current level as technology leaders continue to invest in node transition and leading-edge capacity despite pandemic concerns. It is possible that economic fallout from the global health crisis could disrupt our end markets, our manufacturing capability or our supply chain. While we don't know exactly how things will unfold, our increased diversification and strong operating fundamentals enable us to withstand uncertain periods and will serve us well as the global economy recovers.

And with that, I'll turn the call over to Sheri for a financial review and then open-up the call for questions. Sheri?

Sheri Savage -- Analyst

Thanks, Jim and good afternoon everyone. Thanks for joining us. In today's discussion, I will be referring to non-GAAP numbers only. Ongoing industry demand drove UCT's total revenue to another record quarter. Higher volumes, favorable mix and operational efficiencies sent profitability to new highs and increased earnings quarter-over-quarter.

Total revenue for the quarter was $344.8 million, up 7.4% from the prior quarter. Our Products division grew 7.1% to $277.9 million on increased demand from our two largest customers. Our service business contributed to a record $56.9 million, up 8.7% as wafer FAB utilization returned to more normalized run rates across the customer base.

Total gross margin was 22%, up from 20.9% last quarter. Higher volumes from both business units, favorable mix and factory efficiencies all contributed to the increase. Products gross margin was 17.8% compared to 17.4% last quarter and service margin was 39.3% compared to 35.9% last quarter. Margins can be influenced by customer concentration, geography, product mix, volume and expenses related to COVID-19, so you can expect variances quarter-to-quarter. Operating expenses were $35.4 million, flat compared to the prior quarter. As a percentage of revenue, operating expenses were 10.3% compared to 11% in the previous quarter. Total operating margin for the quarter improved to 11.7% from 9.9% in the first quarter.

Margins from the Product division improved to 10.5% versus 9.5% in the prior quarter due to increased volumes, improved factory efficiencies and favorable product mix. Margins from the Services division was 17.1% versus 11.9% last quarter due to increased volumes coupled by improved factory efficiencies. Based on 40.8 million shares outstanding, earnings per share for the quarter rose to $0.75 on a net income of $30.5 million compared to $0.52 on net income of $21 million in the prior quarter. The increase in earnings per share resulted from higher revenues from both business units and included approximately $2 million of subsidies from the Singapore and China government, primarily related to the COVID-19 situation. Our tax rate for the quarter was 18.8% compared to 18.7% last quarter. We expect our tax rate for 2020 to remain in the high teens.

Turning to the balance sheet. During the June quarter, we increased our cash and cash equivalents to $214.4 million, up from $208.1 million. Cash from operations was $17.5 million, up from $15.7 million in the prior quarter. Subsequent to quarter-end, we made a $7.8 million voluntary principal prepayment on our Term B facility along with our regular $2.2 million principal payment for the quarter, reducing our Term B loan balance by $10 million for Q3.

While demand remains steady for the near term, we are risk adjusting our guidance to account for the numerous uncertainties surrounding the COVID-19 pandemic including unexpected changes to demand or supply chain interruption. We anticipate revenue for the third quarter to be between $320 million and $360 million and EPS in the range of $0.56 to $0.72.

And with that, I'd like to turn the call over to the operator for questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Krish Sankar of Cowen & Company. Please go ahead.

Krish Sankar -- Cowen & Company -- Analyst

Yeah. Hi, thanks for taking my question. I have a few of them. First one, I am just trying to reconcile your guidance. Given the impressive numbers in June and the fact that many of your customers are guiding September up sequentially, you guys are guiding roughly flat. Is that conservatism or is there something else going on in terms of the September guide? And then I have a few other questions.

Jim Scholhamer -- Chief Executive Officer

Yeah. Hi, Krish. This is Jim. Obviously, as Sheri mentioned, it is somewhat risk-adjusted. And I think it's very difficult to bridge, especially from one customer alone from quarter-to-quarter, there are definitely differences in the timing between us and our customers as well. So I think at this point, our guidance is flat and it's flattish and that's roughly where we're confident where we will be.

Krish Sankar -- Cowen & Company -- Analyst

Got it, Jim. That's helpful. And then the guidance aside, do you think that given what happened in Q2 with the fact that supply was obstructed due to COVID, do you think your customers might start building inventory, just to be on the safer side or have you seen any such indication yet?

Jim Scholhamer -- Chief Executive Officer

No, we haven't. I think it's been obviously a pretty much of a mad scramble the last few quarters and another factor is the majority of the things that we do aren't really inventoriable, if that's a word, they're not really shelf items, they're very specific modules and components, which are very dependent on their particular customer as well. So typically, there is not a lot of inventory between us. So we do not believe that the majority of what we're making is doing anything, but continuing on to the customer.

Krish Sankar -- Cowen & Company -- Analyst

Got it. And then just a final question on the Malaysia facility. Is that a function of the fact that your two largest customers have like Malaysia and Singapore facility, is that the reason for it or was there any other specific reason for the Malaysia plant?

Jim Scholhamer -- Chief Executive Officer

[Speech Overlap] Yeah. Recall, we have a Singapore facility as well. Yeah, we are actually -- it turns out that our facility will be within a stone's throw of Lam's facility. That was unplanned, we've been planning this for some time. There's a lot of reasons where we see a lot of continued growth of UCT over the next several years and so we needed to add capacity. There is also -- there has been an overall shift year after year of more -- a higher percentage of what we're building which requires Asia pickup or an Asia destination. So we've seen a higher percentage of Asia sales versus North America as well, but -- and then also continues to put us in a robust, low cost supply chain and manufacturing infrastructure and a lot of other advantages as well. So I think it puts UCT in a very good cost position as well as supports our future growth as we see WFE continue to grow and our share of WFE continue to grow.

Krish Sankar -- Cowen & Company -- Analyst

Got it. Jim, I mean if I can just squeeze in one last with the well publicized push-out of Intel 7-nanometer, how does that impact your -- the SSD business?

Jim Scholhamer -- Chief Executive Officer

Yeah. The push-out was, obviously you're talking about the $1 billion in capex cuts or --

Krish Sankar -- Cowen & Company -- Analyst

I was looking at more like the 7-nanometers pushed out by six months to a year.

Jim Scholhamer -- Chief Executive Officer

Yeah. I think that will impact -- I think that will kind of impact our, maybe a delay down the road in their expansion in fabs for 7-nanometer. So that's something that I think we'd see maybe a two-quarter push-out of their new fab investments. So that would be I think an impact, not reducing their current spend with us, we're continuing to see that grow. But maybe pushing out a few quarters that step function increase in service revenue that we would see from their new investments in 7-nanometer.

Krish Sankar -- Cowen & Company -- Analyst

Yeah. Thank you very much, Jim.

Jim Scholhamer -- Chief Executive Officer

Yeah.

Operator

Our next question comes from Quinn Bolton of Needham & Co. Please go ahead.

Quinn Bolton -- Needham & Company, LLC -- Analyst

Hey, guys. Let me offer my congratulations for the nice results. Well, I guess the first question, just looking at the guidance and I know you're building some level of conservatism in here, but when I look at the EPS of $0.56 to $0.72, that's down from the $0.75 that you just reported, so wondering if you're anticipating any increase in OpEx or lower gross margins, is there something that's affecting profitability in the third quarter?

Sheri Savage -- Analyst

Hi, Quinn. Yes, this is Sheri. We did see a very favorable mix come through the Q2 financials with more weldment shipments as well as additional heater, some of our higher margin products. So we're not seeing that mix right now go through our Q3 to the same level. So that's why the margins or the EPS is a little bit lower, as well as we did have, as we mentioned in the call, $2 million subsidy from China and Singapore. And we don't have that level of subsidy flowing through the P&L in Q3 as well.

Quinn Bolton -- Needham & Company, LLC -- Analyst

Sorry. Is that subsidy -- was that more of a cost of goods or was that an OpEx just so that we can model it appropriate?

Sheri Savage -- Analyst

Yeah, it was in both. I can get you those specific numbers, but they -- majority of it went through cost of goods sold to deal with direct labor costs associated with the COVID situation with a small portion going through OpEx.

Quinn Bolton -- Needham & Company, LLC -- Analyst

Got it. Okay. And then second question, just looking at the utilization, you saw record Services revenue. Can you give us any comment on how you've seen the utilization rates trending both on the logic and the memory side into third quarter here?

Jim Scholhamer -- Chief Executive Officer

Yeah. I think logic, memory and foundry have all continued to -- we don't obviously have at our fingertips the exact utilization numbers, but they've all continued to grow, especially I think the biggest area of growth was memory utilization, which had been suppressed through '19 and started to recover in '20 and we saw that really accelerate the utilization rates in the memory really move in the last quarter.

Quinn Bolton -- Needham & Company, LLC -- Analyst

And then last from me, just as you think about the mix shift and it's maybe hard for you, but did you sort of expect sort of a mix shift from foundry, logic toward memory based on the book business you see for the second half?

Jim Scholhamer -- Chief Executive Officer

Second half, I don't think the mix is going to shift that much. I think as we look into '21 -- I think we see '21 continuing to be pretty strong and continued growth in WFE and I think that's going to be based pretty heavily on memory, I think, memory is going to kind of be cycling at full speed then next year. And so I think that will be where we see the mix start to move. I think there will continue to be strong investments in logic and foundry, obviously logic may be pushed out a little bit, but I think that mix will move more in the next year's memory really, invest beyond just filling our current fabs and we start to see new fabs fill out.

Quinn Bolton -- Needham & Company, LLC -- Analyst

Got it. Great. Thank you very much.

Jim Scholhamer -- Chief Executive Officer

Yeah.

Operator

Our next question comes from Patrick Ho of Stifel. Please go ahead.

Patrick Ho -- Stifel Nicolaus -- Analyst

Thank you very much and congrats on a nice quarter. Jim, maybe as a follow-up on the last question about your Services business and the breakdown between foundry, logic and memory, maybe as you look longer-term, can you discuss the growing intensity or the opportunities on the memory side, especially for your parts cleaning business, can you detail maybe qualitatively how some of the changes on the memory side of things are driving an increase in the use of parts cleaning and the growth in that area for UCT?

Jim Scholhamer -- Chief Executive Officer

Yeah. As you know, we have a very strong position with Samsung. And so we obviously see -- Samsung has started to invest quite a bit in filling out their Pyeongtaek fab and I think there is a new investment going into Xi'an where our joint venture we have a position there as well. So I think we're setup pretty well in that side. I think memory overall -- it's following the same trend, obviously a little bit behind logic -- foundry and logic where the cleaning intensity is going up as the dimensions get more challenging. So we're seeing, I think the requirements and I guess the cleaning value per part are starting to increase in memory as well, which is we saw that move pretty dramatically through logic over the last last year or two into foundry and now we're starting to see that happen in memory as well, where there is a lot of things that require pretty high level cleaning and pretty complex cleaning in the memory space that didn't require that in the past.

Patrick Ho -- Stifel Nicolaus -- Analyst

Great. And maybe as my follow-up question on the Products side of things. You obviously have the multiple business on the Products end, but you're also seeing new applications and new processes, both on the etch and deposition side where you're seeing selective etch and selective deposition, you're also seeing an increase in ALD adoption. Can you again, maybe just qualitatively describe how some of the growth in those new applications, new processes are driving growth for your Products business?

Jim Scholhamer -- Chief Executive Officer

Yeah, especially the ALD application, but also dep and etch, some of the new products coming out. We're pretty -- we're very heavily involved with our customers in those developments and so there is -- I think there's a lot of new generations of products coming out. So I think that's why we will continue to see our gas -- the gas panel side of our business remain very, very strong. So we definitely -- even though ALD has become more productive, it's definitely an application, which is very gas panel heavy versus the wafer output. So that's an application that we cheer on continued adoption in the fab. So it's definitely a positive trend requiring more out of that section of our business in those two areas.

Patrick Ho -- Stifel Nicolaus -- Analyst

Great. And just a final question for Sheri in terms of the pre-payments and your improved cash flow generation. Should we look at additional types of prepayments as the primary use of cash, particularly in this environment when your cash flow generation is at more elevated levels?

Sheri Savage -- Analyst

Yeah, absolutely. We are going to continue paying down our Term B debt as we move forward. So, yes, absolutely, we do plan on doing that periodically as we move forward.

Patrick Ho -- Stifel Nicolaus -- Analyst

Great. Thank you very much.

Jim Scholhamer -- Chief Executive Officer

Thank you, Patrick.

Operator

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

Christian Schwab -- Craig-Hallum Capital Group -- Analyst

Great. Congratulations guys on a great quarter and outlook. Can you walk us through what you believe your aggregate revenue capacity is today before any expansion in Malaysia?

Jim Scholhamer -- Chief Executive Officer

Yeah. Obviously, it's a moving target, with the COVID, we've had to spread out shifts just in order to keep spacing and things like that, but I think first capacity we could cover few burst capacity through extended shifts and days and depending on the different plans, we definitely can foresee covering 30% or so additional output without doing too much of acrobatics and then if there is always a will, there is always a way. So in the short-term, I think we'll be well set, but in the longer term, by the end of next year, we will have significant new capacity coming on board, so we don't see any restrictions or any any ceiling that we'll bump into on being able to support the industry and our customers.

Christian Schwab -- Craig-Hallum Capital Group -- Analyst

Great. That leads to my follow-up. So the movement to Malaysia, you talked about kind of obviously low-cost supply chain and manufacturing infrastructure, I would assume a favorable lower-cost region. But when you're adding capacity in the new Malaysia facility, I guess I'm trying to figure out, are you adding incrementally more capacity or will you be moving capacity from facility to facility to this lower cost, is this -- should we be thinking about this as aggregate brand new capacity when it's fully built-out or will there be puts and takes between the different facilities?

Jim Scholhamer -- Chief Executive Officer

It's actually going to be a combination, Christian. I mean there -- obviously, we do foresee the need of additional capacity. We see -- next year's WFE probably roughly 10% higher than where we currently are and every year we see one or two points of difference between North America and Asia. We see the Asia what's required to be built in Asia increase a few percent and that's been happening year upon year and I think those are starting to accelerate, especially during the COVID crisis, I think logistics and logistics routes became kind of heightened as the supply chain got constrained, I think we all realized the extensive logistics involved and so getting closer to the endpoint became more important for our customers as well. So it's really a combination of adapting the share gains, the WFE growth and the continued shift toward Asia and so there would be some reduction in capacity in North America, kind of to correspond with that as we go. But it's also the Malaysia is also a measured addition. Obviously, the initial building will have a pretty high capacity, roughly, overall at the end of the day increase by 50% our capacity overall, but I think we're going to -- obviously it will be a staged increase in what we had there.

Christian Schwab -- Craig-Hallum Capital Group -- Analyst

Great. And then lastly, I would assume it will take a modest amount of time before you would actually be producing, should we kind of be thinking kind of fall of 2021 for that facility to be ready and ramped and ready to go. Is that the right time-frame? And can you just tell us what you think, if I might have missed it, but what is the capital required to get that facility going?

Jim Scholhamer -- Chief Executive Officer

Yeah. I think the second half of '21 is definitely our plan and we have our factory in Singapore, as well. So we already have a supply chain in that region kind of established, obviously we're going to grow that. But, yeah, that's about the right timing for initial production and we'll be ramping over-time from the initial production. The overall cost, this is a building that we're going to end up leasing. So our capital cost, our cash outlay will just be for the leasehold improvements and the equipment that we need inside that building to operate. So that's a total of around $17 million all-in.

Christian Schwab -- Craig-Hallum Capital Group -- Analyst

Great. All right. That's it. I have no other questions. Thanks.

Jim Scholhamer -- Chief Executive Officer

Thank you, Christian.

Operator

Our next question comes from Rick [Phonetic] Ryan of Colliers. Please go ahead.

Richard Allen Ryan -- Colliers Securities -- Analyst

Great, thank you and congratulations on the strong performance. Say, Jim, with your size and global footprint, were there any supply chain disruptions in the quarter that you were able to benefit from that might stick longer term?

Jim Scholhamer -- Chief Executive Officer

Yeah. Over the last few quarters, we've had several opportunities where we were brought in as a second source where the initial suppliers were struggling. They are not dramatic changes and they tended to be some of the smaller items needed on the -- by the customer on the tool. They weren't major market shifts, but yeah, we definitely benefited over the last few quarters as we stepped into -- to cover it. Some of them were kind of greenfield things that we had never made before and some of them are just share shifts and we expect the majority of that to stick.

Richard Allen Ryan -- Colliers Securities -- Analyst

Okay, great. You mentioned Applied sustainability presentation and in that they talked about a more sustainable and just supply chain, what in particular if it can be defined at this early stage, what does that mean for you guys?

Jim Scholhamer -- Chief Executive Officer

Actually, there is a lot of -- there's a lot of things that can be done that that they don't necessarily -- they're good things for the environment and they are also in the long run they're -- and even in the short run, they're actually more efficient. I'll give you an example. There is a tremendous amount of crates used in this industry, I mean the volume of material that we're moving around is pretty dramatic, so reusable crating and logistics supplies and packaging, that's kind of a simple one right there. And so I think there is a lot of low-hanging fruit we're working together on those kind of requirements, we can reduce our footprint.

There is things in the cleaning process where you can add, where you can recirculate some of the chemicals rather than dumping and disposing and buying new ones. So there is certain technologies you can invest in and none of these take large capital. So there's a lot of, if you're focused, if you put a little bit of focus on these things, you can save time and money and -- not time, you can save money and the environment at the same time. So these ESG requirements are becoming obviously more important for customers, for investors and for everyone. So they're just -- like I said, there is a lot of low-hanging fruit in this area.

Richard Allen Ryan -- Colliers Securities -- Analyst

Sure. Okay, great. Thank you.

Jim Scholhamer -- Chief Executive Officer

Yeah.

Operator

Our next question comes from Tom Diffely of D.A. Davidson. Please go ahead.

Thomas Diffely -- D.A. Davidson & Co. -- Analyst

Yes, good afternoon. Thanks for letting me ask the question. So following up on Patrick's earlier question, when you look at the chemical cleaning market, what is the long-term growth you see there and how is that driven, is it by chamber counter or just the clean intensity going up over-time that's the bigger driver.

Jim Scholhamer -- Chief Executive Officer

Tom, it's driven -- the first order of importance is wafer starts, but a wafer start in the leading edge of 7-nanometer processes has definitely a higher cleaning intensity or dollar value intensity than something more on the trailing-edge. So I think obviously we see that that business typically grows in the mid to high single digits year-on-year. We had a kind of an odd middle of the year last year where memory side was -- utilizations dropped in the middle of the year, but typically it grows with at least at wafer starts. And as those fabs go more to leading edge, we kind of expect that to even increase from there.

Thomas Diffely -- D.A. Davidson & Co. -- Analyst

Okay, that helps. And then I'm just curious, are you seeing any activity on the flat panel side at this point?

Jim Scholhamer -- Chief Executive Officer

That business for us runs from $7 million or $8 million a quarter to $15 million. I think it was in the low-end this quarter. I think our overall non-semi was around $13 million, $14 million. So it's actually -- it's still relatively quiet as I think the OLED adoption on phones has been slower than anticipated.

Thomas Diffely -- D.A. Davidson & Co. -- Analyst

Yeah. Do you expect that to pick up next year or is it tough to call?

Jim Scholhamer -- Chief Executive Officer

It's tough to call. You would have asked me a few years ago, I would have thought that penetration rate would have been a lot higher, but I think it was -- there has been kind of a situation happened where China over-invested in OLED and that had relatively horrible yields. So as they finally improved the yields, they actually -- they got free capacity at the same time. So as well as the prices remain kind of high and the adoption rate in phones remain lower than expected. So I think all of that kind of put the adoption rate back to a year or two, but I think by maybe middle or end of next year, we might start to see that recover, especially with the 5G handsets coming on in the high-end smartphones.

Thomas Diffely -- D.A. Davidson & Co. -- Analyst

Okay. I appreciate your time today.

Jim Scholhamer -- Chief Executive Officer

Yeah. Thank you, Tom.

Operator

Our next question comes from Colin Du of Mackenzie Investments. Please go ahead.

Colin Du -- Mackenzie Investments -- Analyst

Hey guys, thanks for the questions and congratulations on the quarter. Two questions from me. Could you confirm your current outstanding balance on your revolver and term loan? And secondly, what is the current capacity utilization?

Sheri Savage -- Analyst

Yeah, so I can start with the revolver, it's currently at $40 million. We took that down during the Q1 time-frame and we've kept it just in this current environment that we're in, so $40 million.

Jim, do you want to answer the other question?

Jim Scholhamer -- Chief Executive Officer

[Technical Issues] on capacity is the loan capacity or do you mean the overall operational capacity?

Colin Du -- Mackenzie Investments -- Analyst

Operational capacity.

Jim Scholhamer -- Chief Executive Officer

We don't have an exact measure on that where it's not a line of widgets coming out. Obviously, we're near the high-end of where we are. We're at the high end of our capacity, burst capacity, as I mentioned, we can accommodate more and accommodate what we see coming in the next year, but that's obviously one of the main drivers for us to build an additional factory in Malaysia.

Colin Du -- Mackenzie Investments -- Analyst

Okay. And just again on the term loan balance. So post the M [Phonetic] and the voluntary pay-down, you guys would be at $290 million outstanding versus somewhere around --

Sheri Savage -- Analyst

Correct. We paid off -- yeah, we paid off $50 million last year and then we paid off $12.2 million so far this year, so it will be a little bit less than that, but yeah, close to $290 million, $288 million.

Colin Du -- Mackenzie Investments -- Analyst

Okay. Great. Thank you.

Sheri Savage -- Analyst

Thank you.

Jim Scholhamer -- Chief Executive Officer

Thanks.

Operator

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

Jim Scholhamer -- Chief Executive Officer

Yeah, thank you for joining us today. We look forward to speaking to you next quarter.

Operator

[Operator Closing Remarks]

Duration: 36 minutes

Call participants:

Rhonda Bennetto -- Vice President Investor Relations

Jim Scholhamer -- Chief Executive Officer

Sheri Savage -- Analyst

Krish Sankar -- Cowen & Company -- Analyst

Quinn Bolton -- Needham & Company, LLC -- Analyst

Patrick Ho -- Stifel Nicolaus -- Analyst

Christian Schwab -- Craig-Hallum Capital Group -- Analyst

Richard Allen Ryan -- Colliers Securities -- Analyst

Thomas Diffely -- D.A. Davidson & Co. -- Analyst

Colin Du -- Mackenzie Investments -- Analyst

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