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Date

Tuesday, April 28, 2026 at 4:45 p.m. ET

Call participants

  • Chief Executive Officer — James Xiao
  • Chief Financial Officer — Sheri L. Savage
  • Operator

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Takeaways

  • Total revenue -- $533.7 million, up from $506.6 million in the prior quarter, supported by both product and service growth.
  • Product revenue -- $465.7 million, compared to $442.4 million in the previous quarter.
  • Services revenue -- $68 million, up from $64.2 million sequentially from fiscal Q4 2025 (period ended Dec. 31, 2025).
  • Total gross margin -- 16.5%, up from 16.1% in the previous quarter, attributed to improved mix and higher volumes.
  • Product gross margin -- 14.6% versus 14.1% last quarter.
  • Services gross margin -- 30%, up from 29.7% sequentially.
  • Operating expense -- $61.1 million, increasing from $56.6 million last quarter; operating expenses reached 11.4% of revenue.
  • Total operating margin -- 5.1%, rising from 4.9% in the previous quarter; product division margin was 4.2%, services margin at 11.5%.
  • Net income -- $14.5 million, resulting in earnings per share (EPS) of $0.31 across 46.3 million shares; prior quarter was $10.9 million in net income and $0.24 EPS.
  • Quarterly tax rate -- 20%, with 2026 expectation in the low 20% range.
  • Cash and equivalents -- $323.5 million, up from $311.8 million at prior quarter-end.
  • Operating cash flow -- Negative $33.3 million, a shift from positive $8.1 million previously, mainly due to increased working capital and inventory buildup.
  • Convertible senior notes -- $600 million zero-coupon offering completed; proceeds used to fully repay Term Loan B, reducing annual cash interest expense by approximately $30 million.
  • Revolving credit facility -- Upsized from $150 million to $250 million after quarter end, with the interest margin reduced by 75 basis points and maturity extended to 2031.
  • Weighted average borrowing rate -- Expected to fall from roughly 6.2% to approximately 1.4% due to recent refinancing activities.
  • Second-quarter revenue guidance -- Projected between $565 million and an inaudible upper range; EPS guidance $0.44-$0.60.
  • Product and services mix at $4 billion revenue -- Services are expected to comprise 10%-12% of total revenue as capacity ramps.
  • Global capacity -- Current infrastructure can support about $3 billion in annual revenue, with scalability up to $4 billion through modest incremental capital investment.
  • China sales contribution -- Domestic China represented less than 5% of total revenue during March, with management anticipating gradual growth as domestic WFE customers increase share.
  • End market dynamics -- Leading-edge foundry logic, high bandwidth memory, and advanced packaging are cited as primary drivers, with trailing-node foundry logic described as "flattish."
  • WFE (Wafer Fab Equipment) spend -- Customers are projecting $140 billion to $145 billion in 2026, implying 18%-20% year-over-year growth; management notes similar momentum for 2027 around 15% growth.
  • Ultra Clean Holdings 3.0 strategic framework -- Key initiatives include ramp readiness, the MPX new product framework, and digital transformation, all described as progressing, supporting scalability and margin expansion.
  • Leadership transition -- CFO Sheri L. Savage announced retirement and will remain during the transition to a new successor.

Summary

Management emphasized a multiyear upcycle led by accelerating AI-driven semiconductor demand, with explicit commentary on increasing investments by hyperscalers and cloud providers. Ultra Clean Holdings (UCTT 3.50%) described direct customer feedback indicating $140 billion to $145 billion in anticipated WFE spending for 2026, aligning with 18%-20% industry growth. Leadership detailed new capacity and operational investments designed for modular, rapid scale, while digital transformation and regional centers of excellence are aimed at deepening customer integration and enabling faster NPI cycles. Recent refinancing steps, including a $600 million convertible notes offering and upsized revolving credit facility, are projected to materially lower the company's average borrowing cost and enhance financial flexibility. Near-term operating cash flow turned negative due to deliberate inventory accumulation for expanding customer ramps.

  • James Xiao reported, "The rapid expansion of AI infrastructure is fueling increased investment across the semiconductor ecosystem, with hyperscalers and cloud providers expected to deploy significant data center capacity by spending around $600 billion in 2026."
  • Ultra Clean Holdings maintained that infrastructure will not be a near-term capacity constraint, highlighting a run-rate at $2.2 billion with readiness for $3 billion and ability to reach $4 billion with modest investment.
  • Sheri L. Savage stated refinancing actions will bring the weighted average borrowing rate "from around 6.2% to approximately 1.4%."
  • Management outlined that services revenue will continue to benefit from higher wafer starts and ongoing fab expansions, tracking with sustained demand and increased tool utilization.
  • The Ultra Clean Holdings 3.0 strategy focuses on operational agility, digital transformation, and earlier co-innovation with customers, which may enable incremental share gains and margin improvement as AI adoption accelerates.

Industry glossary

  • WFE (Wafer Fab Equipment): Capital equipment used for semiconductor wafer fabrication, a primary indicator of industry capital investment cycles.
  • NPI (New Product Introduction): The complete process to bring a new semiconductor subsystem or component from concept to mass production, often involving engineering collaboration with customers.
  • MPX: Ultra Clean Holdings’ proprietary strategy and framework for accelerating new product development, introduction, and manufacturing transitions to support customer roadmaps.
  • IDM (Integrated Device Manufacturer): A company that both designs and manufactures semiconductor devices, using internal wafer fabrication facilities.
  • High bandwidth memory (HBM): A high-performance RAM interface used in advanced computing, critical for data-intensive AI workloads.
  • Trailing-node foundry logic: Production of integrated circuits using older process technologies, contrasting with leading-edge nodes.
  • Centers of excellence: Designated global sites focused on specialized engineering or production functions to accelerate product development and improve customer collaboration.

Full Conference Call Transcript

James Xiao: Thank you, Rhonda, and good afternoon, everyone. We appreciate you joining us for the Q1 2026 earnings call. In my prepared remarks, I will provide my thoughts on the near- and longer-term market drivers and highlight where Ultra Clean Holdings, Inc. has a clear competitive advantage to capitalize on a variety of opportunities during this multiyear up cycle. Following that, Sheri will provide a financial update and then we will open up the call for questions. We started the year strong and delivered revenue and earnings above the midpoint of our guided range for the first quarter, driven by solid execution across a broad set of products, services, and customers.

As you can see in our Q2 guidance, we are seeing momentum build across the semiconductor landscape, supported by growing industry-wide investments in AI-driven computing. I would like to acknowledge our global teams for the sense of urgency, focus, and operational excellence they continue to demonstrate every day. Their commitment to our customers and to driving continuous improvement is elevating our performance today and positioning Ultra Clean Holdings, Inc. to compete and win in the next phase of AI-driven growth. The rapid expansion of AI infrastructure is fueling increased investment across the semiconductor ecosystem, with hyperscalers and cloud providers expected to deploy significant data center capacity by spending around $600 billion in 2026, driving demand sharply higher.

Investment by memory companies to address the bottleneck will remove a major constraint for the overall server supply chain, increasing foundry unit demand to support its growth. AI data center growth is being fueled by the rapid adoption of generative and agentic AI, and we are now seeing the early impact of physical AI as well. This new wave is driving increased demand for AI memory and leading-edge foundry logic, further accelerating fab capacity investments. These investments are driving the surge in WFE spending, with notably strong demand in leading-edge foundry logic, high bandwidth memory, and advanced packaging, all critical enablers of AI workloads.

Increasing device complexity is driving higher process and equipment intensity, especially in deposition and removal, sustaining the WFE cycle and expanding Ultra Clean Holdings, Inc.'s opportunity. Demand continues to build week by week, and we expect this momentum to increase as customers gain clarity on fab pipelines, delivery schedules, and ramp readiness. Long-term customer forecasts and capacity requests reinforce our confidence in continued WFE demand growth. With our services business directly tied to wafer starts, we are also seeing increasing wafer volumes across IDMs and foundries, driven by AI demand and ongoing fab expansions, with higher tool utilization creating a durable, multiyear growth tailwind for our service business.

We are aligned with our customers and industry sentiment that we are in the early stage of a multiyear cycle that should accelerate into the second half of this year and beyond. Strong demand is occurring alongside emerging supply-side constraints, including clean room capacity and the time required to bring new fabs online. As a result, today's environment is driven not only by demand, but also by the industry's ability to scale efficiently. By executing on our Ultra Clean Holdings, Inc. 3.0 growth strategy, we are strategically positioned to win in this environment. Ramp readiness remains a top priority under Ultra Clean Holdings, Inc. 3.0.

We are executing with urgency and a customer-first mindset, aligning our teams, systems, and supply chain to deliver with speed, quality, and consistency. We see the AI-driven ramp as a meaningful opportunity to drive growth and expand margins through improved utilization and more efficient operations and infrastructure. In parallel, we are advancing our MPX strategy—new product introduction, development, and transition—to accelerate time to market through our global centers of excellence. By co-innovating earlier with customers, compressing NPI cycles, and strengthening responsiveness and supply chain resilience, we are enabling faster ramps to high-volume production near our customers.

This positions us to execute at speed and scale, supporting incremental share gains as customers prioritize development velocity and ramp speed, while driving Ultra Clean Holdings, Inc.'s operating leverage and margin expansion through higher volumes, improved mix, and greater efficiency. We are making strong progress on our third Ultra Clean Holdings, Inc. 3.0 initiative, digital transformation. We are upgrading our systems, processes, and data infrastructure with AI-compatible solutions to improve visibility, reduce cycle times, and increase productivity while enabling faster customer response. These efforts are strengthening our foundation for AI-enabled operations, increasing agility, driving productivity gains, and transforming Ultra Clean Holdings, Inc. into a more scalable enterprise aligned to capture growth in this multiyear AI-driven industry upturn.

Our global footprint can support around $3 billion in revenue today and can scale up to $4 billion with modest incremental capital investment. Assuming continued progress in workforce development, strategic supply chain, and operational scaling, we do not expect infrastructure capacity to be our constraint. As volumes ramp, this should allow Ultra Clean Holdings, Inc. to drive stronger operating leverage, improve profitability, and create sustainable value. In closing, while the long-term outlook remains strong, the near-term environment remains dynamic, with variability across customer spending, potential supply chain constraints, and geopolitics. In this environment, disciplined execution will define the winners.

With our trusted partnerships with key customers, strong ramp readiness, and a global footprint that enables speed, agility, and scale, we believe we are well positioned to capture an outsized portion of the opportunities ahead of us. I will now turn the call over to Sheri, who will summarize our first quarter results and update you with our second quarter guidance. I look forward to your questions following the financial summary.

Sheri L. 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 seeing increased momentum from the early stages of a multiyear AI-driven expansion, and we are executing with urgency to support customer ramps while maintaining a strong focus on operational efficiency, cost discipline, and margin improvement. For the first quarter of 2026, total revenue came in at $533.7 million compared to $506.6 million in the prior quarter. Revenue from products was $465.7 million compared to $442.4 million last quarter. Services revenue was $68 million in Q1 compared to $64.2 million in Q4.

Our global footprint supports about $3 billion in revenue today and can scale to approximately $4 billion with modest incremental capital investment. With ongoing progress in workforce and operational scaling, we do not expect capacity constraints. As production increases over time, we would expect to benefit from improved operating leverage and corresponding margin expansion. Total gross margin for the first quarter was 16.5% compared to 16.1% last quarter. Product gross margin was 14.6% compared to 14.1% in Q4, and services was 30% compared to 29.7% last quarter. Gross margin improved primarily due to better product mix driving factory efficiencies and higher volumes.

Margins continue to be influenced by fluctuations in volume, mix, and manufacturing region, as well as material and transportation costs, so there will be variances quarter to quarter. Operating expense for the quarter was $61.1 million compared to $56.6 million in Q4. As a percentage of revenue, operating expenses were 11.4% versus 11.2% last quarter. Total operating margin for the quarter came in at 5.1% compared to 4.9% last quarter. Margin from our products divisions was 4.2% compared to 3.9%, and services margin was 11.5% compared to 12.4% in the prior quarter. The first quarter tax rate came in at 20%, 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 46.3 million shares outstanding, earnings per share for the quarter were $0.31 on net income of $14.5 million compared to $0.24 on net income of $10.9 million in the prior quarter. During the quarter, we made the strategic decision to further strengthen our balance sheet and meaningfully reduce our ongoing cost of capital. In February, we priced a $600 million offering of zero-coupon convertible senior notes.

We used a portion of the proceeds to fully repay our Term Loan B, reducing our annual cash interest expense by approximately $30 million. Subsequent to quarter end, we refinanced and upsized our revolving credit facility from $150 million to $250 million, reduced the interest margin by 75 basis points, and extended the maturity to 2031, further enhancing our liquidity and financial flexibility. Together, these actions are expected to reduce our weighted average borrowing rate from around 6.2% to approximately 1.4%. Turning to the balance sheet, cash and cash equivalents were $323.5 million compared to $311.8 million at the end of last quarter.

Operating cash flow was negative $33.3 million this quarter compared to positive $8.1 million last quarter, driven primarily by higher working capital as we build inventory to meet near-term demand and support future growth. We are seeing broad-based improvements across the semiconductor landscape heading into the second half of this year and beyond, underpinned by sustained industry investment in AI-driven computing. We remain focused on maintaining discipline around margin expansion and driving sustainable shareholder returns over time. Turning to the guidance, for the second quarter, we project total revenue to be between $565 million and $[inaudible] million and EPS in the range of $0.44 to $0.60.

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

Operator: We will now open the call for questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. You may press star then 1 on your touch-tone phone. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then the number 2. Our first question comes from the line of Charles Shi from Needham. Your line is open.

Charles Shi: Hey. Good afternoon, James and Sheri. Maybe the first question, James, what is the WFE outlook you are seeing as of today? And I think in your prepared remarks, there is a line you mentioned. You talked about solving the memory bottleneck, foundry unit output, and I am not sure the context and the relation to how that increases of that line. And are you kind of implying maybe the memory WFE growth is pretty high today? Maybe some of that strength will transition more to the leading-edge logic. I am not sure what you meant by that line, but can you elaborate a little bit while you address the WFE outlook question? Thank you.

James Xiao: Thanks, Charles. So the WSE outlook is really continuing to grow, bigger than we saw the previous quarter. We see from our customers they are quoting $140 billion to $145 billion in 2026, so that is dependent on where you see the 2025 number, and that was at 18% to 20% year-over-year growth. We see similar momentum; customers are talking about 15% at the top for 2027. To your question about the memory growth, we kind of see that the AI memory capacity was gated in the past three to four quarters, and now we see that all the major memory customers are investing in their greenfield factories and also upgrading their existing fabs to maximize their current footprint.

That actually gives the whole industry an unlock of the constrained capacity, so we will see more of the new leading-edge, new factory launches in basically all three leading customers—TSMC, Intel, and Samsung.

Charles Shi: Got it. So maybe the second question, James, I understand the outlook is getting stronger on a week-by-week basis. You gave a special shout-out to etch and deposition, and I think that is well understood. But is there any part of your end market that may still be a little bit slow, maybe even on a relative basis? I did not hear you talk about lithography. I did not hear you talk about your domestic Chinese customers. What is going on there in those areas? Thanks.

James Xiao: I think that is a very good question. If you see the really fast-growing segment in WFE overall, it is the leading-edge foundry logic and HBM on the memory side and advanced packaging. Those are more etch and dep-intensive in terms of capital intensity. Therefore, relatively, you hear our customers are saying that in the first half deposition and etch is the main service of the WFE, and then in the second half, they see that increase to the high 30s of WFE. Naturally, because this high-growth area is etch and dep-intensive, we see a higher share of dep and etch in overall WFE. The flattish area we see is probably the non-dep and non-etch segment overall.

And, surprisingly, the trailing-node foundry logic is also not going down; it is more flattish. China, as we discussed before, was building inventory safety stock in 2024 and 2025; therefore, now we are seeing they are back to normal. They become a bigger portion of worldwide WFE at 35% to 40% from the low 20s as the portion of the worldwide WFE. I do not think that is an outlier; it is more back to their normal business situation.

Charles Shi: Got it. Maybe the last question from me, if I may. If I understand the typical behavior of your customers correctly, I think this is a year when they are competing for who can ship tools faster to their customers. How do you assess in this kind of situation whether the requests coming from your customers are reasonable, or is there any chance some of the requests you would see are unreasonable and potentially at the expense of growth for your outer years? How do you handle a situation like that in terms of how you allocate your capacity and grow your capacity, etc.?

Just maybe a little bit of a high-level philosophical question—I want to understand how you operate in an environment like this. Thanks.

James Xiao: This is a great question. I really see a warehouse move as an industry. What I mean by that is that we see customers are actually giving us long-term forecasts, so we can do the planning better. The long-term forecasts are showing the growth momentum. They give us confidence to utilize our current capacity and also the confidence to plan for the next step expansion. As I mentioned in my previous earnings call and this one, we really have capacity to run at a $3 billion run rate per year. This current run rate is still $2.2 billion, so we have the runway to address additional demand.

Our brick-and-mortar capacity can handle up to $4 billion, so by minimal capital investment, in six to nine months we can build that capacity and reach the $4 billion run rate. In that sense, we are well positioned to address the drop-in demand from our customers.

Charles Shi: Thanks for the color, James. Thanks.

Operator: Our next question comes from the line of Krish Sankar from TD Cowen. Your line is open.

Analyst: Hi. This is Robert [inaudible] on the line on behalf of Krish. Thanks for taking my questions. I guess the first one is just around your domestic China business. Do you have a percentage of sales figure you could share for March, and just how you sort of expect that portion of your business to trend given that the current semi-cap customers in China have been doing pretty well?

James Xiao: As we previously discussed, the percentage of our domestic China business is less than 5% of our overall revenue. We maintain that kind of range, and what we see is that gradually the domestic Chinese WFE customers will increase their share within the China WFE market, and we see growth opportunity as we grow share with those Chinese customers.

Operator: Our next question is from Christian David Schwab from Craig-Hallum Capital Group. Your line is open.

Christian David Schwab: Great. Congrats on the great quarter and outlook. Given the demand is improving week by week—it is kind of crystal clear—but if you look at the year, do you have an idea of what percentage of revenue will be second-half weighted versus the first half?

James Xiao: Great question. As you can see in our forecast, we are seeing close to double-digit growth quarter over quarter. We expect from Q1 to Q2 a similar range of growth going forward and for the second half—

Christian David Schwab: Perfect. Thank you. And then, given $4 billion in revenue potential driven by increased WFE, but finally seeing a very material increase in wafer starts to drive your service business, when you talk about $4 billion in revenue potential and another $1 billion that could be added given a modest amount of capital and notice to put that online, what would you anticipate would be your mix of revenue at $4 billion that would be service?

James Xiao: That is a good question. As we discussed, our service revenue is really a function of wafer starts, and a small portion of that business is also directly correlated to the WFE growth. In aggregate, we expect double-digit growth for the year on the service side. Going forward, we still see a range of 10% to 12% as our overall revenue percentage.

Christian David Schwab: Great. And then lastly, historically, if we go back to 2021 as far as the last accelerated WFE spending cycle, you outgrew WFE materially. Should we assume the big primary driver of your growth outperforming WFE is the lag period between installing fab equipment and wafer starts being finished, which is the driver of the services business? Or do you think this cycle you are better positioned for market share gains?

James Xiao: I would definitely say that we will grow with the WFE growth and with upside potential on both product and service sides. The playbook is always: defend the core—where we are in a leading position—and grow the TAM, so we enter into new modules and new gas panel business as our customers expand their product portfolios. And then, finally, win at inflections—position ourselves with stronger NPI capabilities so we can align with customers’ NPI road maps and win in the next node inflection.

Christian David Schwab: Understood. Great. Thank you. No other questions. Thank you.

Operator: Our next question is from Edward Yang from Oppenheimer. Your line is open.

Edward Yang: Hi, James, Sheri, team. Thanks for the time. Just first question related to that strong second-quarter guide on the revenue side and for the remainder of the year, how should we think about gross margin progression?

Sheri L. Savage: Gross margin should continue to improve as we move through the year. We will see it being slightly up in Q2 and then continue to grow as we move through the year as revenue potentially goes up. Obviously, mix and where it is shipping from do play a factor, and things change as we move through the year, but we truly do see it trending up as we get closer to the Q4 time frame.

Edward Yang: And, Sheri, if I could dig a little deeper related to mix, you have a plethora of different products and services. Focusing on the product side, what are the gross margin differentials between your lowest and highest? What is your highest margin product, and then maybe talk some detail around that?

Sheri L. Savage: We do not publish specifics on individual product margins, but as I have mentioned before, we have a large bell curve of margins. They can range anywhere between 10% to 50% to 60% depending on whether it is a component part or it is a module or a gas panel. It depends on the sheer volume of each of those mixes of products that play into our overall gross margin, along with how fast the revenue comes in to us and how fast we can hire labor and other costs associated with that. Those are the key factors that play into our margin as we grow revenue.

So again, a large bell curve of margins—there are quite a few different products and different margins within those products as well, which is why it makes it complicated to detail all of those out.

Edward Yang: Got it. And maybe a question for James. Beyond the general uplift in WFE, you mentioned your Ultra Clean Holdings, Inc. 3.0 strategy. I know it is a long-term vision, but just interested in the progress around that, the co-innovator and the MPX framework, and wondering how customer receptivity has been to that, and when we can expect to see specific market share gains or new module wins around that MPX framework.

James Xiao: Great question. We are investing in our regionalized centers of excellence. We have an NPI center of excellence in the U.S., and we have further enhanced that. We are expanding our NPI capabilities in Asia and also in Europe. Customers want to have engineers co-innovate—define the spec and really design the system and modules—close to their core engineering teams. That is in Europe and the U.S., and expanding to Asia, so we follow customers' needs on that. Then we will also transfer that locally by region to our HVM sites, also distributed across all regions—U.S. and Europe and Southeast Asia.

That is well aligned with our customers' strategy, where they are also moving their global engineering footprint close to their high-value production sites. We see early momentum, and that is accelerating our NPI engagement with customers. We already have a strong pipeline of NPI engagement with existing customers; these regionalized centers of excellence further enhance our capabilities.

Edward Yang: Thank you. Thanks.

Operator: Our next question is from Krish Sankar from TD Cowen. Your line is open.

Krish Sankar: Hi. Thank you. I realized I put myself on mute after my prior question, and my second question was going to be around the margin profile, but you answered it. No need to repeat yourself. Thank you again.

Sheri L. Savage: Thank you.

Operator: I would like to turn the call back over to Sheri L. Savage for an announcement.

Sheri L. Savage: Thank you, operator. I have an announcement to make, and I wanted to share it on this call because I personally know many of you here today. After a lot of thought, I have decided to retire from Ultra Clean Holdings, Inc. Being part of Ultra Clean Holdings, Inc.'s journey over the past seventeen years has been an incredible privilege. I am incredibly proud of what we have built together, and I am deeply grateful for the trust, partnership, and support of our teams, our leadership, and our Board. I am confident that Ultra Clean Holdings, Inc. is ideally positioned for continued growth in the years ahead.

I will remain fully engaged until we find my successor, looking both internally and externally, and I will continue behind the scenes to ensure a smooth transition. Thank you for making this journey meaningful and rewarding for me. I really appreciate the support many of you have given to me over the years. And with that, thank you for joining our call today. We look forward to seeing you when we report our second quarter earnings.

Operator: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.