Good afternoon. My name is Brandy, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Ultra Clean Technology Second Quarter Financial Results Conference Call. [Operator Instructions] Joining us today is Mr. Sheri Brumm, Vice President of Finance; Mr. Casey Eichler, Chief Financial Officer; and Mr. Clarence Granger, Chairman and Chief Executive Officer. I would now like to turn the conference over to Ms. Brumm. You may begin your conference.

Thank you, Brandy. Welcome to our Second Quarter Financial Results Conference Call. Presenting today is Clarence Granger, Ultra Clean's Chairman and Chief Executive Officer; and Casey Eichler, Ultra Clean's Chief Financial Officer. Casey will begin by presenting the financial results for our second quarter, and Clarence will follow with some remarks about the business. A few moments ago, we issued a press release reporting financial results for the second quarter ended June 29, 2012. The press release can be accessed from the Investor Relations section of Ultra Clean's website along with the information for the tape delay and replay for the live webcast at uct.com. Together with our recently issued press release, this conference call enables the company to comply with the SEC regulations for fair disclosure. Therefore, investors should accept the contents of this call as the company's official guidance for the third quarter of fiscal 2012. Investors should note that only the CEO and CFO are authorized to provide company guidance. If at any time after this call we communicate any material changes in guidance, it is our intent that such updates will be done officially via public forum, such as press release or publicly announced conference call. The matters that we discuss today include forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995 related to matters including our future financial performance, new product orders and shipments and industry growth. Investors are cautioned that forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those projected in the forward-looking statements. Some of those risks and uncertainties are detailed in our filings with the Securities and Exchange Commission. The company disclaims any obligation to publicly update or revise any such forward-looking statements or to reflect events or circumstances that occur after this call. Now, here is Casey with the second quarter financial highlights.

Thank you, Sherry. The numbers that I will be presenting today represent only UCT's financial results. The merger with Advanced Integration Technology, or AIT, officially closed during the third quarter on July 3, 2012. As a result, our third quarter conference call will detail our combined financials. Now I will cover the results of Q2 2012. Revenue for the second quarter was $101.9 million or a decrease of 8% from the prior quarter and a decrease of 24% when compared to the same period a year ago. Semiconductor revenue for the second quarter was $87.7 million, a decrease of 7% and non-semiconductor revenue was $14.2 million, a decrease of 14% when compared to the first quarter. A majority of the decrease in the non-semiconductor revenue sector is due to the transition in relationship with FEI. Semiconductor revenue was 86% of total revenue for the quarter compared to 85% in the prior quarter. Revenue outside the U.S. was 37% in the quarter, an all-time high for UCT, compared to 32% in the prior quarter. Two customers had revenues over 10% for the quarter, and gas delivery systems represented 61% of our revenue. Gross margin for the second quarter decreased to 14% compared to 14.2% in the first quarter and 14.2% in the same period a year ago. We continue to focus on margin improvement, and that made good progress over the last year. We will have additional opportunities moving forward as we leverage the combined strength of UCT and AIT. Operating expenses were $9.3 million or 9.2% in the second quarter. Our operating expenses as a percentage of revenue will be in the range of 9% to 10% in Q3 as revenue declines and we combine UCT and AIT. Although this was not a combination based on larger synergies, there will…

Thanks, Casey. During the second quarter, we announced our intent to merge with AIT. We are pleased that the merger was finalized on July 3, 2012. This merger accomplishes several key strategic objectives for UCT. First, the combination adds several new customers. In the semiconductor equipment space, it adds ASM International as a new customer and significantly increases the relationship with KLA Tencor. Additionally, it adds several new smaller customers in the medical equipment space. Secondly, the merger brings new capabilities to UCT. Specifically, AIT has fully integrated manufacturing structure including the manufacturing of complete tools as well as the addition of frame manufacturing and sheet metal fabrication. We believe the addition of these capabilities will allow the combined company to better serve all of our current and future customers. Finally, the merger adds additional scale and will be immediately accretive to UCT. Now that the merger is finalized, we are beginning integration activities. We have created integration teams within both companies and are preparing initial integration plans. Our objective is to end up with one unified company utilizing the best systems and processes from both companies. We intend to move quickly. At the same time, we don't want to move so quickly as to endanger our performance and customer relationships. While the success of this merger is not predicated on business synergies, we do believe there will be significant benefits realized from the combination in the longer term. We are very excited about the addition of AIT and its employees to the UCT team, and we look forward to a successful partnership. During Q2, UCT experienced the beginning of an industry slowdown. As Casey previously stated, our revenue for Q2 was $101.9 million and our earnings per share were $0.17. On our previous earnings call, we had guided to…

. [Operator Instructions] And your first question comes from the line of Jagadish Iyer.

Two questions. First, on the Q3 guidance. I know you kind of alluded to UCT being down about 20%. Just wanted to get some thoughts on, even though you guys have very little overlap, how much was the AIT portion down from Q2 to Q3, kind of indicated it more or less flat? Do they have completely non-exposure? I thought you had like some 20% exposure and you had some key customers like KLA and ASM. So I just wanted to get your thoughts on that, then I have a follow-up.

Sure, Jagadish. This is Clarence. So yes, you're correct. Essentially, what we said is that we will, as a combined entity, be down about 20%. Of that, it's almost exclusively UCT. UCT will be down about 25% to 30% and AIT will essentially be flat. And it's simply AIT's largest customers are different than UCT's largest customers and in their particular situation, they're experiencing less of a decline than our other -- than UCT's other semiconductor equipment customers.

Okay. Just a quick follow-up on the gross margin side. Clearly, it's going to be accretive. Do you think that probably the 15% to 18% target is realistic for the 2013 timeframe assuming that it's a $30 billion WF fee spending environment?

Yes, I think that our target remains 15% to 18%. And I think obviously because of the accretive nature of this, this brings us to that much more quickly. It's a combination of their customers and their product mix with ours that I think as we fine tune that, I think it's doable to achieve that, absolutely.

And again, we're adding capabilities as well.

Okay. Just one -- just a quick clarification. I mean, how are you sizing up your business for the Q4 timeframe given that, obviously there's a very little visibility, but in terms of is there -- some companies have talked about bounce back. What are your thoughts and how are you sizing up the business?

Sure. Again, we don't give guidance into Q4, but the indications that we're getting from our customers is that we would anticipate them to have a little rebound in Q4. Trying to quantify that at this stage is impossible.

Your next question comes from the line of Edwin Mok.

So I guess a follow-up to a question to your answer to that last question, Clarence. If I take a full-year tax guidance, assume you just stick with 32% in the third and fourth quarter, that would imply higher a 4Q, right? Am I reading too much into that?

A higher percentage in Q4?

No, higher top line in the fourth quarter. That's the only way I can get to 28% if have 32% in the back half of this year.

Yes, I get it. As we combine these, we're still going through the structuring related to taxes. They had a small presence, I think as Clarence has referenced in the past, in Cebu, Philippines as well as our mix, as we just mentioned, has gone to the high level in this last quarter at 37% in Asia, which affects the tax rate. So I think, Clarence's has guidance on what most people are thinking as the Q4 is a little bit more solid than Q3 is a reasonable assumption, but he's right. It's really difficult to tell out there, but there's a lot that goes into that rate related to combining these companies. And so that's why I'm trying to give you some guidance out for this next quarter, and then I'll try to firm that up as we get ourselves positioned into Q4.

Great. That was very helpful. And then just on the second quarter, if I look at the non-semi piece, it was only down $2.1 million sequentially. And I thought your FEI business was more than that in the March quarter. Am I correct on that, and if that's the case, where did you see actual improvement sequentially on the first quarter?

So we didn't lose all of our FEI revenue in the second quarter, but we did lose a significant amount of it. And then on the other areas that did well, the medical guys are doing very well, and that continued to grow as a percentage of revenue in the second quarter.

I see. And then you mentioned on your prepared remark that the LED, you start to see some improvement in LEDs. Is that material? That's the first part. And the second part, was that -- are those new designs that you guys won in LED space or are those just customer coming back to buy on designs that you have won previously?

Yes, Edwin, I think our situation maybe a little different than the overall industry. Our customers had actually been in an over-inventory situation, they really weren't taking any product from us, whatsoever, in the previous couple of quarters. They were taking some new builds related to new products, but nothing from ongoing manufacturing basis. And so they've now consumed all of the inventory that they've had from us. And in Q3, we expect to receive some orders. It's not huge. It's on the order of $1 million to $2 million for the quarter, but that's a lot higher than it's been and it's the first indication that we're receiving that they have consumed the inventory that they had that was UCT related. And as you mentioned, we are -- virtually, all of our business on the MOCVD side is coming from new products, next-generation products. So as those gain acceptance in the marketplace, we expect to benefit from that.

Great. That was very helpful. And then Just to touch on the semi side. Obviously, that sounds like that was the main contributor for decline in the September quarter. And you mentioned that on AIT side, things are turning to be a little bit better. I'm just curious because typically semi moves together and while AIT may have different customers, I'm calling it a surprise that you said that AIT was flattish considering how much it declined on your side. I'm just curious, beyond customer mix, right, is there anything else that they're doing better or maybe they have some design win that they have started to ramp and that helped them? Any color would be helpful.

Yes, on the AIT side, again, we think our decline, it has nothing to do -- there's no market share loss or anything like that. So our decline is almost exclusively mirroring what we've heard from our customers and what we think they're going to experience on their gas delivery system requirements. On the AIT side, they have some products that are actually increasing in demand based on their position in the marketplace and those products being introduced and gaining wider acceptance. And so that's offsetting some declines they're seeing in other areas are the fact that they are qualified and they're producing some systems that are actually gaining traction in the marketplace.

You have to be careful too, Edwin, when looking at our forecast for Q3 and thinking about some of our customers because it doesn't exactly map where it turns business. There's other dynamics that go into their business, and so what we're doing is taking what we're involved in and the areas where we're involved in and I don't think -- it don't directly maps. But obviously, if there's a softness across our customers, that is something that drives us one way or the other.

Okay, that's helpful color. One last question. If I just take your guidance right, it implies that your gross margin should be in the, call it, 15% to 16% range already with AIT. So it sounds like you guys, the AIT margin is actually probably a bit higher than that, right? Did I read that correctly, so AIT margin is like in the high teens?

Certainly, their margins have been higher than our margins traditionally, and so we don't give guidance on the exact margin profile for next year nor are we going to call them out. But yes, I mean, we've said this is an accretive transaction. And obviously, when you're a small company, you don't have public company expenses and a lot of other things, but they also have been involved in some products and some market scenarios where we haven't been involved, and I think that those margins have traditionally been a little better so that will be helpful to ours overall.

We also, Edwin, believe that the fact that they are more vertically integrated through the manufacture of sheet metal and frame assemblies and that they make some complete tools for some of their customers, we think those are factors that help them achieve higher margins than UCT, and we think some of that is going to be transferable to UCT over time where we want to incorporate more of their frame manufacturing capability into some of our products.

[Operator Instructions] Your next question comes from the line of Colin Rusch.

Can you talk about opportunities for new content in the LED space with MOCVD manufacturers? Are there opportunities for you guys to take hold of content share there?

Well, I mean, obviously, what our hope is, is that we hope our customers transition to newer generation products. We are only qualified on newer generation products in any kind of volume potential opportunity. So as the industry transitions to some of the newer products, we think we'll be a beneficiary from that, and that's what we're hoping will happen as quickly as possible. Obviously, there's been a glut in the marketplace now for a while and so I don't think anybody's been buying much of anything, but our hope is that as this starts to turn around a little bit, we should be a beneficiary.

Great. And then just on the synergy, I know it's early days with the merger. Can you talk a little bit about how long you think you're going to start to see some of the synergies from the merger? And could we see benefit ahead of schedule potentially just given some of the nice and cultural synergies that you guys have already?

Yes, Colin, this is Clarence. So, yes, we absolutely believe that there's some very significant cultural synergies, and so we think that's going to help us potentially develop some new customers and new products that we can jointly participate in. In terms of timing on something like this, it's a fairly lengthy process. But there are things that range from what can happen almost immediately. For example, we buy a lot of the same parts from a lot of the same manufacturers, exactly the same parts. And so very quickly, we're going to go in and find out if we're paying the exact same price for those same parts, I doubt we are. So I'm sure at some point we'll see some fairly quick small benefit on the materials side. Things of a longer-term nature are they are on a different ERP system than we are. And so it will probably take us as long as a couple of years to get to a common ERP system. So I think we're going to see things that are going to range from a month or 2. They have a small facility in Santa Clara where the lease expires at the end of July and we'll probably transition to combine that with the UCT facility. So we'll -- and that could potentially save us $20,000 in a quarter. So they're going to be -- we believe that there will be a fair number of synergies. And even in the case where we're talking about direct overlaps of people in the long run, that will free up more people for us to target new business opportunities. So yes, we're very excited about this, and we think there are going to be some things that we'll see probably as early as Q4, but there will be some things that will stretch out into a couple of years from now. So we're very focused on moving as quickly as possible. On the other hand, both companies have been good suppliers to their customers, and we don't want to make any hasty moves that could cause us a problem, either in performance or relationships. And so, again, we'll be very cautious about those things, but I think everybody on both sides is very excited about the potential opportunities here.

Your next question comes from the line of Dick Ryan.

I think you may not have caught it, the guidance, $0.10 to $0.14, are you including any transaction-related costs in that range?

We are not. What I said is we're going through the purchase price allocation, all the valuation studies that you go through. And what I'll do is I'll call that out, see and we'll probably break it out separately on an ongoing basis. I'll give you kind of whatever amortization's going to come through. I'll give amortization in the other numbers that help you guys then break out the cash and noncash, et cetera.

Okay. And you mentioned you guys had 2 customers over 10% at UCT. What's the profile at AIT that it' was -- typically, do they have a concentration of customers there as well over 10%?

They do have customers over 10%. It's likely that the combination of the 2 companies will result in one additional customer. That's a greater than 10% customer for the combined entity. So that it's likely that we will have 3 customers that are greater than 10% concentration. One of them a former AIT, well, obviously. Two of them are UCT customers and one of them would be an AIT customer.

Okay. Can you give us a sense on what depreciation might look like going forward? Is that same kind of thing you'll give that on next call?

Yes. I mean, they're not unlike ourselves where depreciation is not a huge number to the story. We're around $800,000. And obviously, need to get into their capital plan and see what we're going to do on the year going forward. But there's nothing unusual there on a scale basis compared to what we do. The change there is going to be the amortization as we go through. And again, amortize, you set up the goodwill in the different buckets and then amortize that. And that's that piece that I think I'll get more color on and be able to tell you on the next call.

Okay. And one last -- Clarence, the LED business, what was that in Q2? How much of that amount to?

Less than 1%. I mean, hold on, let me...

That's correct.

It's about 0.5%.

[Operator Instructions] And our next question is a follow-up question from the line of Jagadish Iyer.

Just a quick question, Casey. I wanted to find out how should we think about the semi and the non-semi business as we progress through the year? And longer term, how do you see that mix changing going into 2013? Just a qualitative perspective would be good.

Yes. So their biggest customers are clearly and what we will categorize as semiconductor. As Clarence mentioned in the call, they've got some interesting customers in medical that are a small amount that I think we have opportunities to build off of. We've also talked in the past that they do some things in aerospace and some other areas where we traditionally have not been. So I think those are opportunities that certainly are out in 2013 as far as the build off of, but they are things that we can build off of. But I don't see a real profile change. Obviously, if the LED market came back, that would change the semi versus non-semi on the UCT side quite a bit. And there are other opportunities that we're going to jointly get together and try to pursue to try to be able to take advantage of the strengths of this acquisition -- of this merger, I should say. So I think that majority of our revenue is going to continue to be from semi for the balance this year and then certainly in the next year, but I think there are opportunities that help us to be able to bring that back into balance as we leverage things that are new like Bruker and some of the other things but also leverage opportunities that both companies have.

And there are no further questions at this time, sir.

Great. Well, I appreciate it. Again, it's a very exciting time here. Obviously, the backdrop of the second half is not what brings us the excitement but the opportunity to combine these companies and really build off. This is very exciting, and we look forward to communicating more to you about that in the future. Thank you very much.

This does conclude today's conference call. You may now disconnect.