Good day and welcome to the UCT third quarter 2021 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.. Please note, this event is being recorded. I would now like to turn the conference over to Rhonda Bennetto. Please go ahead.

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 a financial review and then we will 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 Factors section 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 would like to turn the call over to Jim. Jim?

Thank you Rhonda and thank you all for joining us today. I am going to start with a review of our third quarter performance and share my thoughts on the industry and how UCT continues to raise the ceiling on performance and consistently outperform the markets we serve. After that, I will turn the call over to Sheri for our financial review and then we will open up the call for questions. UCT has demonstrated solid companywide execution through this extended expansion of WFE growth over multiple quarters. Our Q3 results reflect the strength of our business and the tremendous demand we are seeing from customers worldwide. Revenue for the quarter of $553.7 million and earnings per share of $1.07 are the highest recorded in. UCT's history. Using the midpoint of our fourth quarter guidance, we anticipate year-over-year revenue growth for 2021 of approximately 50% and EPS rising by 49%. The growth trajectory of our end market is accelerating. Our customer base is growing and our opportunity pipeline is expanding. This is shaping up to be a truly extraordinary year of outperformance for UCT. Technology advances continue to drive the underlying shift in the need for semiconductors. Because the number of uses per chips have increases so significantly over the past few years and will continue to evolve, we see ongoing strength into 2022. We believe the long term upward trajectory of the WFE market is sustainable and that high levels of demand for our products and services will continue for the foreseeable future. UCT's remarkable performance was a result of several competitive advantages. One of the most important thing is the broad diversification of our products and services. We indirectly touch many of the chips that go into a wide variety of electronic devices. We make the machines that…

Thanks Jim and good afternoon everyone. Thanks for joining us. In today's discussion, I will be referring to non-GAAP numbers only. I am very pleased to report total record revenue for the quarter of $553.7million, up 7.5% from the prior quarter. Our products division was up 8.9% to $481.9 million, which includes our first full quarter of revenue from Ham-Let of $64.4 million. Our services division was down slightly to $71.7 million due to delayed shipments as we were challenged with labor shortages at our Hillsboro site, which have now been mostly resolved. Total gross margin for the third quarter rose to 21.6% and remains at the high end of our model compared to 21.2% last quarter. Products gross margin increased to 19.3% compared to 18.8% last quarter. And services rose to 36.9% compared to 36.2% last quarter. Margins can be influenced by customer concentration, geography, product mix and volume, so there will be variances quarter-to-quarter. Operating expenses for the quarter was $50.9 million compared with $48.9 million in Q2. As a percentage of revenue, operating expense declined slightly to 9.2% compared to 9.5% in the prior quarter. Total operating margin for the quarter improved to 12.4% compared to 11.7% in the second quarter. Margin from our products division increased to 11.9% compared to 10.9% in the prior quarter. Operating margin from our services division was 15.4% compared to 16.7% in the prior quarter due to lower volumes. Based on 45.4 million shares outstanding, earnings per share for the quarter increased to $1.07 on net income of $48.8 million compared to $0.99 on net income of $43.7 million in the prior quarter. Our tax rate for the quarter was 15.5% compared to 17.6% last quarter. We expect our tax rate for 2021 to stay in the mid to high teens. Turning to the balance sheet. Our cash and cash equivalents were $457 million at the end of the third quarter compared to $451.4 million last quarter. Cash from operations increased by $2.2 million to $53.3 million compared to $51.1 million in the prior quarter. During the third quarter, we made another payment on our Term B loan in the amount of $25 million, brining our voluntary payment for the year to $50 million. For the fourth quarter, we anticipate revenue between $590 million and $630 million, an increase of 10.2% using the midpoint. And we expect EPS in the range of the $1.12 to $129. periodically, we need to align our physical year-end with the calendar year-end. As a result, the fourth quarter will be a 14 week quarter versus the usual 13 weeks. And with that, I would like to turn the call over to the operator for questions.

[Operator Instructions]. And the first question today comes from Patrick Ho with Stifel. Please go ahead.

Thank you very much and congrats on the really nice execution in a difficult environment. Jim, maybe first off, as it relates to the supply chain, given your results, you obviously outperformed expectations. But what were some of the key moving parts that, one, you faced in terms of the supply chain challenges itself? And secondly, how were you able to react to ensure that you were able to deliver, particularly on the products side, the necessary parts to customers?

Yes. Hi Patrick. It's interesting. A lot of the parts that are bottleneck one week are a different bottleneck in three weeks. So I think the big difference is, even such things like cable can sometimes can be trouble. So I think the big difference is that we are really working backward as far as we can with suppliers to give them the best forecast and actually POs long into the future to try to help them better what they are planning. I think that was that one of the keys. I think another key is that we are able to, we have stuff. We have over two dozen sites, like I mention. So were able to, when we have bottlenecks in one place, we are able to kind of move it around to a different site. But I think hats off to our procurement and our supply chain team and our ace team. I think they were really flexible but they really knocked down multiple different challenges including freight as another thing and they knocked down multiple various challenges throughout the quarter.

Great. And maybe as my follow up question for Sheri. Again, you guys performed really well in the gross margin line given the difficult challenges. But environment is also seeing, as you just mentioned, elevated freight costs, procuring parts, just a lot of these supply chain issues creating incremental costs. I guess how were you able to balance and manage that situation to get the gross margins above expectations?

Yes. I think first off. obviously volumes play a big role in this as well as the fact that we have quite a few things shipping out of our Asia facilities that's continued to grow as a percentage of our total revenue. We have seen freight costs go up. Just as a order of magnitude, back in 2019 we were spending about 1.6% of revenue on freight. Now it's upwards of 2.5%, 2.7% depending upon the quarter. So those costs have gone up significantly. But I think the volume plays quite significantly into it as well as obviously our new acquisition of Ham-Let. They have very good gross margins as well. So that really helps in addition.

Great. Thank you very much.

Thanks Patrick.

The next question comes from Tom Diffely with D.A. Davidson. Please go ahead.

Yes. Thank you. And just to follow-up on Patrick's question, Sheri. When you look at that basis point or 100 basis point increase in the freight cost, do you view that as a more mid term, longer term permanent increase? Or could you consider that just a near term add that's going to go away at some point over the next few quarters?

I think it will come down a bit over the next couple of quarters. I think we are in the height of some of the supply chain issues that we have seen and obviously freight is one of those key factors. There are not have enough truck drivers. There are not enough planes right now. So I think once that starts to work itself out then we can hopefully see some of those costs come down. But it may not come down to 2019 levels but I think they should come down over the next couple of quarters, I would anticipate.

Okay. And when you have to expedite a shipment to meet foreign customers' needs, is that reimbursable through that customer? Or do you have to foot the bill?

It depends. IT depends on whether they are obviously accelerating something for us to actually meet their demand or if for some reason we have an issue with the supply chain that we are managing. So it just really is dependent upon the situation. But it's one of our customers had pulled in very quickly, we obviously can't be able to get reimbursed for that.

Great. Okay. And then Jim congratulations on the shipment out of Malaysia, the new facility there. We have been hearing though from others that this labor has been an issue with COVID in Malaysia. I wonder if that has impacted your ramp or your scheduled ramp there?

No. It has not. We are fortunate we are in the northern part of Malaysia. A lot of those COVID issues are related two other of the sovereign regions in Malaysia. So we just have been very fortunate that that hasn't been an impact to us. At this point obviously, it doesn't contribute a significant amount of revenue yet. But I think we are going to continue to keep our dexterity in place so that we can switch between China, Singapore, Malaysia, North America, even our Philippine plant as need, because you just never know where COVID may flare up.

Yes. Helpful. Okay. And then finally, when you look at the extension of the Ham-Let business, how do you view the rollout of the time it takes to get new tooling up and running, maybe go to through some qualifications? How do you view how quickly you can increase capacity over the next year?

Yes. Mostly it's about renewed tooling, the qualification. And that is very simple process. So nothing that delayed the customer in most cases. Typically, on the lead time of these tools and installation is around three to four quarters. We did approve a batch of investment even have before the deal closed in April. So we are seeing some of that that may come online in the end, by the very tail-end of this year and then we made a few other investments along the way and we think those will start coming in more like the first quarter, second quarter of next year. But we expect we will be able to start ramping up in revenue. It's been ramping up very nicely. We have been able to get some efficiency gains and we squeezed out some more through this quarter. But I expect to see a bigger increase in revenue starting in the first quarter of next year.

Okay. Well, thank you and thanks for your time today.

Thanks Tom.

Thank you.

The next question comes from Krish Sankar with Cowen. Please go ahead. Krish, your line is open if you would like to ask questions.

Hi. This is Bryan Bergin, on behalf of Krish. Thanks for taking my question. Maybe just a quick follow-up on supply chain issues just in the greater industry at large. Is there any worry that your customers could be impacted by ramps at other facilities where that that could have a carry effect into your ordering patterns or any sort of inventory builds?

I am not sure I followed your question. Our customers, the OEMs ramping at other facilities? You mean like Lam bringing up Malaysia plant or more capacity being added by Applied. I am not sure I followed that question.

Sorry. If there's any sort of impact to their business from supply chain issues that could have a affect on their ordering patterns with your businesses or any sort of worry that maybe customers are building up inventory in case there any sort of issues with having to be flexible with their supply chain down the road?

Yes. I mean the supply chain issues are affecting everyone, even our peers, our customers, everyone is working through those issues. So that's nothing new. It typically is more of an inconvenience or a nuisance of delaying shipments a few weeks. It tends not to be a dramatic change. But I think it's kind of stabilized at the level where you still have to work it pretty hard to get what you need to get out close to the date that the customer needs. But I don't think it's getting any worse. And I think you mentione4d, we should start getting better. Maybe in the fourth quarter or the first quarter next year.

Okay. Thank you. I appreciate the color on that.

You are welcome.

The next question comes from Christian Schwab with Craig-Hallum Capital Group. Please go ahead.

Hi. Congratulations guys on really the execution. Can you remind us of your current visibility, given the supply chain and lead time changing across the board? Is your visibility fairly better than it usually is? Or has it changed in the few last quarters? Or is it longer than typical? Can you just remind us of that, please?

Yes. Hi Christian. The lead time is variable, specifically typically that we had in a normal environment as around one quarter reading and even with the third month of the quarter that we are looking forward is a little bit spongy. Now I think we have pretty good visibility through the first quarter and we are seeing continued strength into the second quarter. So our visibility is around getting close to three quarters of a pretty good bottoms up purchase orders and pretty strong forecasts going forward.

Right. And then is it that connects dots for, but it seems like that increased visibility that you had allows you to also go and procure aggressively purchase orders in hand from your suppliers to kind of eliminate some of the bottlenecks maybe that other people have been having? Is that fair to say?

Yes, absolutely. And we work hand-in-hand with our customers and through backwards of the supply chain. So even with our customers don't have hard orders for us, they will make commitment to cover our liability as we make hard orders back to our supply chain so that we are covered on areas like forecast where there's no hard PO yet. So I think the OEMs are really working pretty smartly to try to help, given the visibility as deep and as far down with the supply chain as possible. It tends to be a problem that occur that are three of four layers deep in the supply chain.

Right. And so could you just remind us on the Malaysian additional facility? Do we lay n that capacity due to WFE growth and your ability to be core pretty disposed to heavier concentrations of edge and fab historically as a percentage of WFE which has historically last few years have grown their number in general? Or is it also a combination of line of sight on market share gains from existing customers you might outsourcing for? Can you help us brain in our heads how you plan on filling that capacity over time and remind us how much it is?

Sure. It's around about $600 to $800 million in revenue annually of capacity. We are also using part of that to bring over the Ham-Let product capacity capability production, they have capabilities with SAM. So we see a lot of opportunity there. When we first built Malaysia, I think out of the $800 million, maybe half to two-thirds we thought would be filled by transitioning to higher cost regions to lower cost regions. Now the way the industry has outgrown and our share gains have bested against for outsourcing opportunities is where we are seeing a lot of share gains to get our customers on fabrication. I think it's probably more like, I will estimate three quarters or more to the market industry and outsourcing growth. And make the opportunity to actually transition from higher costs leading to lower cost regions is actually a smaller percentage of what we anticipate that plant to be used for.

Okay. Great. So that's wonderful. No other questions. Thanks guys.

Thank you Christian. Drive safe.

[Operator Instructions]. The next question comes from Quinn Bolton with Needham & Company. Please go ahead.

Hi Jim. Congratulations on the nice result. I mean I apologize I missed most of the prepared comments. But wanted to ask two questions. In response to the last question you talked about the share gains and maybe made some comments in the prepared script. But wondering if you can address that share gain opportunity. If I look at your results versus those of your nearest competitor, you are clearly growing much, much faster in the near term and I understand that that your competitor was constrained by operations in Malaysia. But I am wondering, to the extent that your competitors are constrained, how quickly can an OEM move a module or a gas panel from another supplier to UCT?

Yes. They share gains I am talking about are more like, they don't move quickly. they are more planned outsourcing move by our two major customers. There's not a lot of movement. I think the issues that some of our peers are having are obviously short term and clearly force majeure type of issues. So it's unfortunate. But I don't think that's not really the share gains that I am talking about. I am talking about mostly winning outsourcing opportunities from our two major customers and maybe even some of those are intended to go straight into our new Malaysia factory. So when you look at the SAM, our biggest opportunities is actually our customers needing to really move more and more of their production out of their facilities because they have grown so dramatically. So that's the major area I am talking about.

But I mean do you see any opportunity for OEMs to kind of shift systems from one major module vendor to another? Or do you think that to your competitors whether they are direct competitors or some of the larger contract manufacturers to the extent that they are constrained? Do you think that that demand stays with that supplier and it just pushes from one quarter to the next?

Yes. Short term, like in a job, the ratio of how much business they give each of us. But long term, share gains are typically done through a long term planning process. So even when one of our peers struggle or if we were to struggle, there might be a shift of share from 50/50 to 55/45 or something like that in the short term. But they tend to move them back to the balance after those issues are resolved. So I think what I am really talking about is the things that don't go away. When they take it out of their own facility, close down their production of a certain module of a certain capability and move it to UCT. Those are the real sticky supplies market share wins and that's really where we focus. But there's not a lot of long term movement between us and our competitors.

Got it. So it sounds like any share from competitors that you pick up is pretty transitory, what it sounds like you are telling us?

Yes. And that is, obviously you have to remember, there's a lot of comments that goes in between all of us in the ecosystem. Celestica, Ichor, Benchmark, Jabil, we are actually, we are not only competitors but we are also customers and suppliers to each other. So there's a lot of comments going on behind the scenes to kind of help the end customer get out what they need. So often times, we support each other when we are coming through issues of delivery. We try to make sure that the end customer is met. So that's obviously, you might see a short term bump in revenue and things like that but long term the real opportunity is really the huge amount of insourcing that still needs to move outsourcing from the OEM. That's really where we are focused.

Understood. Thank you for that additional color. Jim, the second question I had was, I think a quarter ago, you were saying you were holding off on some of the Ham-Let qualifications, especially on your gas panels, given how constrained the Ham-Let business was. It sounds like Ham-Let is still constrained in the near term. But you just talked about some additional tooling coming online by year-end and more tooling coming on by the end of the second quarter. And knowing that these qualifications probably take two to three quarters, I am wondering if you are starting that activity now to try to get components qualified so that by the end of the qualification period that aligns pretty well with that additional tooling coming on for Ham-Let.

Yes. I think, you have to think about qualifications in two different ways. Qualifications, but just by adding a new tool into the factory, but you are making the same product that you are already qualified to make for the customer, that is a very simple, very quick process. So that does not take two to three quarters. That takes within a quarter, within a few weeks. The qualifications that take a while are a family of components to a customer that hasn't used those components in the past. And that's where you have to run a lot of lab tests and things like that. That we have started. We have actually started that before the acquisition, because we were working with Ham-Let as a key supplier that we wanted to grow. So that started well over a year ago and that's going very well. At this point, if we can bring new capacity as fast as we can bring capacity out, we can sell the product. It's a race to expand.

Got it. Okay. That's what I wanted to know. Thank you very much.

All right. Thank you Quinn.

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

Thank you for joining us today and we look forward to talking to you again in the New Year 2022. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.