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DATE

Feb. 23, 2026, 4:45 p.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — James Xiao
  • Chief Financial Officer — Sheri Savage
  • Vice President, Finance — Brian Harding
  • Operator

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TAKEAWAYS

  • Total revenue -- $506,600,000 for fiscal Q4 (ended Dec. 26, 2025), a sequential decrease from $510,000,000 in the prior quarter.
  • Products revenue -- $442,400,000, down from $445,000,000 in the previous quarter.
  • Services revenue -- $64,200,000 versus $65,000,000 the prior quarter.
  • Fiscal year revenue -- $2,100,000,000 for the fiscal year ended Dec. 26, 2025, characterized as "roughly flat" with 2024 according to Savage.
  • Gross margin -- 16.1%, declining from 17% sequentially due to a shift in product mix.
  • Products gross margin -- 14.1%, down from 15.1% last quarter.
  • Services gross margin -- 29.7%, slightly lower than 30% the previous quarter.
  • Operating expenses -- $56,600,000, a decrease from $57,700,000 sequentially; representing 11.2% of revenue, up from 10.6% in the prior year.
  • Operating margin -- 4.9% this quarter, compared to 5.7% previously.
  • Net income and EPS -- $10,000,000 net income and $0.22 diluted EPS, compared to $12,900,000 and $0.28 in the prior quarter.
  • Fiscal year EPS -- $1.05, down from $1.44 the prior year.
  • Cash and cash equivalents -- $311,800,000, compared to $314,100,000 at quarter-end previously.
  • Operating cash flow -- $8,100,000 for the quarter and $65,600,000 for the fiscal year, relatively flat with the prior year.
  • Capacity utilization -- Currently averaging 65% globally, with installed capacity supporting up to $3,000,000,000 in annual revenue.
  • Asia manufacturing footprint -- 50% of total capacity located in Asia, with plans to expand that to 60% to mirror key customers’ geographic needs.
  • Fiscal Q1 2026 revenue guidance -- Projected in the range of $505,000,000 to $545,000,000, with EPS guidance of $0.18 to $0.34.
  • WFE (Wafer Fab Equipment) market outlook -- Xiao stated, "our view on the overall WFE is bigger than a month ago. So we are looking at 15% to 20% year-over-year growth."
  • China revenue exposure -- Accounts for less than 7% of total revenue and is forecast to remain flattish for fiscal 2026.
  • Gross margin outlook -- Harding forecasted fiscal Q1 2026 gross margins to be "roughly the same, maybe slightly up from Q4, and then sequentially up from there through the year."
  • Service segment growth -- Xiao projected double-digit growth for Services in fiscal 2026, weighted toward the second half of the year.
  • AI-driven structural upturn -- Xiao characterized the demand environment as "not a normal cyclical upturn; it is an AI technology inflection," highlighting the shift from consumer to AI infrastructure and applications.
  • Capacity expansion plans -- Xiao asserted, "only modest incremental cleanroom investment will be required" to support the $4,000,000,000 annual run-rate goal.
  • Long-term strategic vision -- Management repeatedly referenced "UCT 3.0" and indicated alignment between ramp readiness, incremental capacity, and customer roadmaps for future industry inflection.

SUMMARY

Management signaled a structural upturn in the semiconductor cycle, intensified by accelerated AI infrastructure investment and end-market demand. Ultra Clean Holdings (UCTT +6.31%)’s installed capacity is currently underutilized at 65%, enabling it to absorb future order growth and align with customer geographic shifts toward Asia. Executives issued revenue and EPS guidance for next quarter above the direct sequential comparison, and set out an ambitious long-term plan—called UCT 3.0—anchored to efficient capacity utilization, margin improvements, and readiness for high-volume demand inflections.

  • Xiao stated, "we are very confident we will be kind of in line with the WFE growth, and we also see that because we have well-planned extra capacity that really can address $3,000,000,000, we will capture more opportunities leveraging that extra capacity."
  • Xiao responded to memory cycle duration, sharing, "The thing that you hear from our customers’ customer, right? Some of them are mentioning that the shortage will last until 2028. And we see that all three of them, Micron, Samsung, and SK, are really investing on greenfield, while they continue to convert existing fabs to address immediate demand. So we really see this as a multiyear upturn for the memory segment."
  • Savage described margin sensitivity, clarifying that gross margin "was impacted in Q4 due to a shift in product mix."
  • Harding committed to sequential margin expansion, saying Q1 gross margin will be "roughly in line, maybe slightly better in Q1, but then as volumes come in, as James mentioned, in Q2, Q3, and Q4, we expect sequential margin expansion in a meaningful."
  • Management asserted that China OEM exposure will comprise "less than 7% of our overall revenue" and forecast it to remain flat even as global WFE expands.
  • The "MPX strategy" was identified as the company’s cross-functional approach to new product introduction, development, and transition intended to enhance customer integration and cycle speed.

INDUSTRY GLOSSARY

  • WFE (Wafer Fab Equipment): Capital equipment used in the manufacturing of semiconductor wafers.
  • MPX strategy: Company-specific initiative encompassing new product introduction, development, and transitioning designed to accelerate customer solution cycles and co-innovation.
  • UCT 3.0: Management’s current long-term strategic framework focused on capacity scaling, operational agility, and technology co-innovation to drive profitable growth at Ultra Clean Holdings.

Full Conference Call Transcript

James Xiao: Thank you, Rhonda, and good afternoon, everyone. And thank you for joining us. This is my first earnings call as CEO. And as I approach nearly six months in the role, I remain very energized by the opportunity ahead of us. We have spent significant time across our global sites meeting with employees, customers, and partners, and have developed an even deeper conviction in the strength of our team, our strategic position, and have refined our long-term growth strategy and vision, which I now call UCT 3.0. I want to thank our employees worldwide for their focus, resilience, and commitment to operational execution during this transition.

Their dedication to our customers and to continuous innovation and improvement is fundamental to our performance, and it positions us well as we enter a new phase of AI-technology-driven industrial growth, where speed, scale, and execution will become the defining advantages for long-term winners like UCT.

James Xiao: As you have heard recently from our customers and their customers, we are no longer preparing for a semiconductor recovery. We are entering a structural expansion of wafer fab equipment driven by AI infrastructure and physical AI demand. The long-term outlook for the semiconductor market remains very strong. Industry projections now suggest the market could reach $1,000,000,000,000 in annual revenue by 2027, possibly earlier, which is significantly ahead of prior expectations. What we are witnessing is not a normal cyclical upturn; it is an AI technology inflection. The center of gravity has shifted from consumer electronics to AI infrastructure, physical AI, autonomous driving, and other AI applications.

The evolving AI roadmap from generative AI to physical and agentic AI, and ultimately artificial general intelligence, or AGI, is driving greater end-customer confidence and accelerating investment in AI infrastructure. Stakeholders across the AI ecosystem are investing to support growing AI end-market demand. Rising device complexity is accelerating wafer fab equipment spending as leading-edge fabs deploy new materials like molybdenum and new structures such as gate-all-around and high-bandwidth memory. These technologies require tightly integrated solutions across deposition and removal with increased dep/etch CapEx intensity, which provide a tremendous growth opportunity for UCT. All these market drivers should lead to a multiyear WFE upturn once wafer fabs address their near-term cleanroom constraints.

Our technology co-innovation is tightly aligned to our customers’ roadmaps. We expect to see strength around etch and deposition, especially ALD and high-precision etch, to support gate-all-around and backside power distribution logic transitions, as well as high-bandwidth memory, advanced packaging, and greater than 300-layer NAND in memory. This environment demands innovation velocity and operational agility. This is how UCT is positioned today and will continue to evolve to win and create sustainable, profitable growth. This strategic transformation is what we call UCT 3.0. Ramp readiness is our top priority now. We have been preparing for this moment, and this is where UCT has a distinct competitive advantage.

Over the past several months, we have been focused on our business to operate with greater responsiveness and sensible urgency, efficiency, and accuracy. Leveraging our global talent and footprint, we are driving operational execution initiatives to ensure we grow as the partner of choice for engineering support, development, and also manufacturing support. Through facility optimizations over the last several years, we have the capacity in place now to support approximately $3,000,000,000 in revenue today, with global utilization currently averaging 65%. Among our worldwide capacity, approximately 50% is currently Asia, with plans to increase to 60%, which is strategically aligned to support our key customers’ global manufacturing footprint.

As volumes ramp quarter over quarter, we will be focused on improving operating leverage and generating meaningful margin expansion. While we expect 2026 demand to be second half weighted and increase into 2027, customers are encouraging us to position capacity ahead of that inflection. Our largest customers are providing extended visibility, enabling us to align capacity and service infrastructure in advance of increased order activity. In parallel, we have identified and addressed product-specific supply chain and manufacturing constraints to ensure readiness for a step-function increase in orders. For UCT to support our long-term goal of a $4,000,000,000 annual run rate, only modest incremental cleanroom investment will be required.

We do not expect infrastructure-related capacity to be a limiting factor during this cycle, provided we continue to build and retain the scaled workforce required and leverage automation and lean capabilities to scale capacity efficiently. Having well-planned actual capacity entering a technology inflection of this magnitude is a strategic competitive advantage. This allows us to support customer roadmaps while capturing pull-in and drop-in opportunities and responding rapidly to urgent needs and frequent changes that others may struggle to support.

James Xiao: In addition to our ramp readiness initiatives, we are also accelerating the design-to-production cycle, expanding our participation in high-value new product introductions at the leading-edge nodes, and strengthening strategic technology integration with our customers. A key enabler of this is our expanded MPX strategy, which is comprised of new product introduction, new product development, and new product transition. Together, they will position UCT to co-innovate earlier, run faster, and manufacture closer to customers, driving speed, responsiveness, and supply chain resilience at scale. Another important focus area is on digital transformation.

By upgrading our systems, processes, and data infrastructure with AI-compatible solutions, we are further improving operational visibility, shortening cycle times, enhancing productivity, and enabling a faster response time to our customers. These digital initiatives set a solid foundation for our multiyear digital transformation drive toward AI-enabled IT infrastructure and business processes to enhance operational agility and continuously improve productivity. In closing, we remain focused on reaching our long-term $4,000,000,000 revenue target, expanding margins over time, and delivering durable shareholder value as a strategic co-innovator and manufacturing partner throughout the next cycle of technology inflection. I will now turn the call over to Sheri, who will summarize our fourth quarter results and update you with our first quarter guidance.

I look forward to your questions following the financial summary. Thank you.

Sheri Savage: Thanks, James, and good afternoon, everyone. Thanks for joining us. In today’s discussion, I will be referring to non-GAAP numbers only. As James mentioned, we are entering a structural expansion of wafer fab equipment spend driven by AI infrastructure and physical AI demand. I will now review our fourth quarter and full-year results, as well as provide our first quarter guidance. For the fourth quarter, total revenue came in at $506,600,000 compared to $510,000,000 in the prior quarter. Revenue from products was $442,400,000 compared to $445,000,000 last quarter. Services revenue came in at $64,200,000 in Q4 compared to $65,000,000 in Q3. For the full year, total revenue was $2,100,000,000, roughly flat with 2024 revenue.

Due to facility optimization initiatives over the last several years, we have the capacity in place now to support approximately $3,000,000,000 in revenue and are currently averaging 65% utilization. We believe that in order for UCT to support a $4,000,000,000 annual run rate, only modest incremental cleanroom investment will be required. We remain focused on aligning workforce capacity with demand while leveraging automation and lean disciplines to drive efficient and scalable growth. Total gross margin for the fourth quarter was 16.1% compared to 17% last quarter. Products gross margin was 14.1% compared to 15.1% in Q3, and Services was 29.7% compared to 30% last quarter. Gross margin was impacted in Q4 due to a shift in product mix.

Total gross margin for 2025 was 16.5% compared to 17.5% in the prior year. Margins continue to be influenced by fluctuations in volume, mix, manufacturing region, and related tariffs, as well as material and transportation costs, so there will be variances quarter to quarter. As production levels increase sequentially, we expect improved operating leverage and meaningful margin expansion. Operating expenses for the quarter were $56,600,000 compared to $57,700,000 in Q3. As a percentage of revenue, operating expenses were 11.2% versus 11.3% last quarter. For the year, operating expense as a percentage of revenue was 11.2% compared to 10.6% in the prior year. Total operating margin for the quarter came in at 4.9% compared to 5.7% last quarter.

Margin from our Products division was 3.9% compared to 4.9%, and Services margin was 12.4% compared to 11.1% in the prior quarter. For the full year, operating margin was 5.3% compared to 6.9% in the prior year. Fourth quarter tax rate came in at 21%, consistent with our expectations. Our mix of earnings between higher and lower tax jurisdictions can cause our rate to fluctuate throughout the year. For 2026, we expect our tax rate to stay in the low-20% range. Based on 45,800,000 shares outstanding, earnings per share for the quarter were $0.22 on net income of $10,000,000 compared to $0.28 on net income of $12,900,000 in the prior quarter.

For the full year, earnings per share were $1.05 on net income of $47,700,000 compared to $1.44 on net income of $55,200,000 in 2024. Turning to the balance sheet, our cash and cash equivalents were $311,800,000 compared to $314,100,000 at the end of last quarter. Cash flow from operations was $8,100,000 this quarter, compared to breakeven last quarter, primarily due to working capital management. For the full year, cash flow from operations was $65,600,000 compared to $65,000,000 in the prior year. Looking ahead, we continue to see a strong structural backdrop for semiconductors, with industry estimates now calling for annual revenue to approximately $1,000,000,000,000 by 2027, possibly earlier.

We continue to execute toward our longer-term $4,000,000,000 revenue goal with a focus on expanding margins and generating durable shareholder returns. For 2026, we project total revenue to be between $505,000,000 and $545,000,000. We expect EPS in the range of $0.18 to $0.34. I would now like to turn the call over to the operator for questions.

Operator: Ladies and gentlemen, we will now begin the question and answer portion of the call. You will hear a prompt that your hand has been raised. If you would like to withdraw from the polling process, please press star followed by the number two. If you are using a speakerphone, please make sure to lift your handset before you press any keys. Your first question comes from the line of Charles Shi from Needham. Please ask your question.

Charles Shi: Hi, good afternoon. Thanks for taking my questions. I want to start with your overall view on WFE. Back in January, I believe you talked about probably low- to mid-teens WFE growth. I saw your presentation. There is a $125 to $135 billion projection in the deck, but I am not so sure about your base numbers. So can you give us a little bit better sense of what is your WFE forecast this year? And on a related question, the Q1 guidance looks like at least on a year-on-year basis, at the midpoint of the guidance, it is only up a little bit. So it looks like you may be implying a very, very strong second-half pickup.

I wonder how the shape of the year could be. Thank you.

James Xiao: Hi, Charles. Let me answer your questions, and I will have Sheri come in. So as I explained to you in the Needham conference a month ago, we see the forecast increase week by week. So right now, our view on the overall WFE is bigger than a month ago. So we are looking at 15% to 20% year-over-year growth. And in terms of your second question, yes, we do not see probably what you see year over year, quarter over quarter from our customers, but we have a big bump from Q3 to Q4. So if you take the average, the increase rate actually is kind of in line with our customers’ growth rate. Okay?

Charles Shi: Hi, James. So maybe a quick clarification. You said big bump. Basically you are saying maybe the run rate for your revenue run rate, you see September will be a very, very strong pickup from June, maybe a strong pickup again from September to December. Is that what you were speaking to?

James Xiao: Yeah. Thanks. Yeah. I think that you are right. So looking forward, we definitely see a step-function increase in 2026, and that is where we see the year-over-year. We are very optimistic about the whole-year growth.

Charles Shi: Thanks. Maybe I may ask a question about the gross margin. So can you provide a little bit of color on March? What is the implied gross margin expectation under your revenue and EPS assumptions? Thank you.

Brian Harding: Hey, Charles. This is Brian Harding. I will cover the margin question for you. Just quickly, yes, we expect gross margins in Q1 to be roughly the same, maybe slightly up from Q4, and then sequentially up from there through the year.

Operator: Thank you. Your next question comes from the line of Krish Sankar from TD Cowen. Please ask your question.

Krish Sankar: Yes. Thanks for taking my question. James, I have two of them. One is if WFE is going to grow 15% to 20%, is it fair to assume you could outgrow that WFE this year? And would your revenues grow sequentially every quarter, or is it really more back-half weighted that Q2 will be flattish? So just trying to figure out if you can outgrow WFE for Ultra Clean revenues.

James Xiao: Yes. I think that what we look at is, this year we see really kind of a step-function growth of the WFE. So we are very confident we will be kind of in line with the WFE growth, and we also see that because we have well-planned extra capacity that really can address $3,000,000,000, we will capture more opportunities leveraging that extra capacity. So we are pretty confident we will be on par with WFE growth or even higher.

Krish Sankar: And would it be sequentially growing or is it more really like Q3, Q4?

James Xiao: I think that we will see another growth in Q2 already, but more of that function in the second half.

Krish Sankar: Got it. Got it. And then a quick follow-up. How much was China as a percentage of revenues last quarter, and how do you expect that to grow, especially given that the Chinese semi-cap customers seem to be doing pretty well?

James Xiao: It is a great question. I think that as you have already heard from our customers, the WFE in China is flattish. In 2026, I think because the worldwide WFE is growing substantially, the percentage of the China WFE will be lower. For our business, for the China OEMs, we will see also kind of flattish forecast for 2026. But overall, it is less than 7% of our overall revenue, so I would not put too much emphasis on this.

Krish Sankar: Got it. Thank you very much.

Operator: Next question is from the line of Edward Yang from Oppenheimer. Please ask your question.

Edward Yang: Hi, James. Thanks for the time. Just wanted to follow up on the gross margin assumption for the upcoming first quarter 2026. I think Brian mentioned that you are expecting same or slightly up from the third quarter. So just wondering what is driving that? Why are you not seeing more operating leverage from that? And can you maybe talk a little bit more in detail about the mix issue that you saw in the fourth quarter?

James Xiao: Yes, Ed, I will answer that and maybe Brian can chime in. Overall, I really see, as I said, we are running at 65% utilization today, and we will definitely see the demand growing quarter by quarter. So by 2026, we definitely see a much higher utilization rate that will naturally expand our margin profile. And also, we are keeping very disciplined operation cadence, so we will not grow the OPEX and IDL as the revenue grows. That discipline will also give us margin expansion opportunities. And Brian, maybe you want to talk more on the model standpoint.

Brian Harding: Yeah, sure. Just looking at Q3 to Q4, first off, Ed, in Q3 we did have a favorable product mix that did not repeat again in Q4. Our margins do continue to fluctuate with volume and mix and manufacturing regions, as well as tariffs and material transportation costs. A number of things impact our margins quarter to quarter. Going forward into Q1, I did say that we expect Q4 and Q1 to be roughly in line, maybe slightly better in Q1, but then as volumes come in, as James mentioned, in Q2, Q3, and Q4, we expect sequential margin expansion in a meaningful way.

Edward Yang: Okay. And this is a tough question to answer, but, you know, obviously, a lot of excitement around what is happening in memory, and that is a business that in the prior peak was, you know, $900,000,000 in revenue for you. It is down about $300,000,000 from that peak. So I would imagine that would have some significant upside as well. So James, when you think about, I guess, this memory cycle, what is your feeling in terms of how much longer it could go in terms of the strength on the upside, and what are the sort of parameters we should be watching out for in terms of the slope of that upcycle and the duration of that upcycle?

Thank you.

James Xiao: Thank you, Ed. This is a great question. The thing that you hear from our customers’ customer, right? Some of them are mentioning that the shortage will last until 2028. And we see that all three of them, Micron, Samsung, and SK, are really investing on greenfield, while they continue to convert existing fabs to address immediate demand. So we really see this as a multiyear upturn for the memory segment.

And also you look at the end-market demand; HBM will compromise the nameplate capacity in the DRAM factories, so you almost need more WFE investment to compensate that focus on the HBM capacity expansion while they still try to address the unbalanced demand and supply in the regular DRAM market. And also, I think that if you look at NAND, you still see that upgrade from the 2xx to 3xx and 4xx, so that will continue. You heard Lam is talking about that $40,000,000,000 over multiple years of NAND upgrade capacity and investment, and they also mentioned that they are going to modify that model seeing the demand even for the SSD, for example. Right?

So I think that overall, we really believe this is a multiyear growth for NAND. Customers are talking about for the AI-specific memory they see 22% bigger, or 2x to 3x of CAGR compared to the regular memory market.

Edward Yang: That is very helpful. Thank you.

Operator: Your last question comes from the line of Christian Schwab from Craig-Hallum. Please ask your question.

Christian Schwab: Great. Thanks for taking my question. So James, with the 65% utilization rate, in your recent, you know, facility optimization over the last year and a half or two years, how should we be thinking about it? What utilization rate or what type of order visibility would be required to put, in essence, the $1,000,000,000 worth of capacity that is available to you above and beyond the $3,000,000,000 you have today? How should we be thinking about that?

James Xiao: Yeah. I think that what we see today, Christian, is that week by week, we see a drop-in forecast. So we are very optimistic from the quarterly run-rate standpoint we will fill that capacity very quickly. Especially, we are actually shifting our focus to Asian manufacturing. It is in line with our customers’ global manufacturing strategy. So very soon, you will see our Asian factory will fill completely, and that will eventually represent 60% of our global capacity. It will match the customers’ manufacturing footprint. With the increasing utilization, with highly weighted Asian manufacturing, we will see really the positive improvement on our margin profile.

Christian Schwab: And then on the margin profile, understanding utilization rates having an impact, but as your customers then begin to, especially in memory, materially increase wafer starts per month, naturally your services business, which is heavily influenced by wafer starts, similar to what we saw in 2021 when that mix of revenue was larger, in a 29% gross margin plus or minus, naturally drives gross margins there without any material increase in Product gross margin. I am thinking about that right?

James Xiao: Yes. You are right.

Christian Schwab: Great. So I think that—

James Xiao: Yeah. So I guess the question is, what is the growth on the Services business? In that sense, we see double-digit growth in 2026. Again, it is also weighted in the second half. When our leading-edge foundry logic customers ramp up their factories in the U.S., we definitely see we are well positioned for that U.S. foundry logic ramp, in addition to our current customers we are serving in the U.S.

Christian Schwab: Got it. No other questions. Thank you.

Operator: There are no further questions at this time. I would now like to turn the call back to James Xiao for closing comments. Sir, please go ahead.

James Xiao: Thank you for joining us today. This concludes our earnings call.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you very much for your participation. You may now disconnect.