advancing semiconductor manufacturing...
TRANSCRIPT
Fall 2018
Advancing Semiconductor Manufacturing Technology
This presentation may contain forward-looking statements and management may make additional forward-looking statements in
response to your questions. These statements are made under the ''safe harbor'' provisions of the U.S. Private Securities Litigation
Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,”
“intends,” “plans,” “believes,” “estimates” and similar statements. Statements that are not historical facts, including statements
concerning our beliefs, forecasts, estimates and expectations, and those regarding our expected financial results for fourth quarter of
2018 are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties that could cause actual
results to differ materially from those projected or anticipated, including risks related to: the risk that our results of operations are
cyclical and may fluctuate from period to period; the risk that we rely on a small number of customers for a significant portion of our
revenue; the risk that the industries in which we participate are highly competitive and other risks outlined in our public filings with the
Securities and Exchange Commission, including as set forth under “Risk Factors”, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and elsewhere in our most recent Quarterly Report on Form 10-Q and Annual Report
on Form 10-K filed with the Securities and Exchange Commission. The forward-looking statements made in this presentation relate
only to events or information as of the date on which the statements are made in this presentation. Except as required by law, we
undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future
events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events
Management uses non-GAAP net income and non-GAAP net income per diluted share to evaluate the Company's operating and
financial results. The Company believes the presentation of non-GAAP results is useful to investors for analyzing our core business
and business trends and comparing performance to prior periods, along with enhancing investors' ability to view the Company's results
from management's perspective. The presentation of this additional information should not be considered a substitute for results
prepared in accordance with GAAP. Tables presenting reconciliations of non-GAAP results to U.S. GAAP results are included in the
Appendix.
2
Safe Harbor
Non-GAAP
3
Investment Highlights
Capitalizing on opportunities in equipment manufacturing, parts cleaning, microcontamination analysis
Flexible, vertically integrated model supports significant growth and creates high barriers to entry
Key customers (OEM & IDM) enabling robust organic growth opportunities
Increasing recurring revenues driving financial leverage and strong operating profitability
Accelerating share growth through acquisitions
PAGE:
INTEGRATION & TEST
MANUFACTURING
Expert Outsourcing Partner
SUPPLY CHAIN MANAGEMENT
Design for manufacturability
(DFM)
Partnering with customers onnew products
Global network of strategicsuppliers
Comprehensive new product introduction
process
Subsystem through full
tool integration
MANUFACTURINGENGINEERING
PROTOTYPING/ DEVELOPMENT
Highly integrated, one-stop, full
spectrum solution for semi customers
4
CLEANING& ANALYSIS
tool chamber parts cleaning and
coating, microcontamination
analytical services
United States55%
China4%
Singapore31%
Europe4%
Others6%
5
Driving UCT’s Rapid Financial Growth
$469
$563
$924
5.1%
7.6%
11.7%
0%
6%
12%
18%
$0
$400
$800
$1,200
2015 2016 2017
(% margin)($Millions)
Historical Revenue and Adjusted EBITDA Margin(1) FY 2017 Revenue Breakdown(1)
6
FACTORY
INTERFACE
GAS PANEL
PROCESS
CHAMBER
TRANSFER
CHAMBER
Key Customers Enable Organic Growth
UCT’s solutions provide avenues for organic market expansion going forward
* Based on UCT internal estimates
UCT Supplies Critical Elements of the Semiconductor Manufacturing Process
Prep Front-end Processing Back-end Processing
Semi Manufacturing Process
Process step with gas deliveryProcess step with liquid
delivery
EpitaxialPhoto-
resistLitho-
graphy
CMP
Slicing
Ingot
CMP
Implant
Clean
Depos-
ition
Etch
Certain Steps
Repeated
20x – 30x
Package
and Test
Core UCT offering
Source: Company Information. 9
A CM-UCT
CM-A B CM-B C D E F CM-C G H CM-D I J K L M N O P Q R S T U V W
Specialty Manufacturer Contract Manfacturer
Thousands of additional suppliers
Leading Manufacturer in a Highly Fragmented Supply Chain
Sem
i E
qu
ipm
en
t R
eve
nu
e
Manufacturers
Source: VLSI 2017 Critical Subsystems Market Share (excludes pump and optic suppliers), UCT internal estimates.
Scale is Difficult to Achieve
10
Scale positions UCT to provide differentiated, comprehensive global solutions.
Target core semi customers who require high capacity
solutions to deliver copy-exact services
Scale operations to capitalize on market growth (close to customers)
Increase content on customers’ platforms; expand
cleaning and analytical services
Accelerate share growth through acquisitions
11
Growth Strategy
1
2
4
3
Strategic M&A; targets accretive to earnings with recurring cash flows
Disciplined Track Record in Executing Acquisitions
Feb
2015
Aug
2015
Sep
2018
Jul
2012
American Integration
Technologies (AIT)
Bolstered chemical
delivery offering;
Facilitated vertical
integration in chemical
and gas delivery
Added to customer base &
expanded manufacturing
capabilities
Expand customer base and
capitalize on recurring
revenue stream
Purchase Price: $100.3mm
EV / EBITDA: ~5.0x
PF Debt / EBITDA: ~1.5X
Purchase Price: $43.6mm
EV / EBITDA: ~11.8x
PF Debt / EBITDA: ~2.2x
Purchase Price: $22.8mm
EV / EBITDA: ~6.2x
PF Debt / EBITDA: ~3.7x
Purchase Price: $342mm
EV / EBITDA: ~6.6x
PF Debt / EBITDA: ~2.2x
Source: Company materials, Company filings and website. 12
$179 $185
$218
17.0%
17.8%
23.2%
0%
12%
24%
36%
$0
$100
$200
$300
2015 2016 2017
(% margin)($mm)
Quantum Global Technologies at a Glance
Headquarters: Quakertown, PA
Founded: 2000
Employees: ~1,800
Business Description: Largest global outsourced provider of cleaning, coating and refurbishment (“CCR”) and micro-contamination analytical lab services to the semiconductor industry
Operates in two segments:
❑ Outsourced Parts Cleaning – QuantumClean
▪ Leader in cleaning of sub-14nm process parts with estimated 33% of market share
▪ 18 Advance Technology Cleaning Centers
▪ 4,000+ production cleaning and recoating methods
▪ Recurring revenues from Fabs (IDMs) and OEMs
❑ Analytical lab services – ChemTrace
▪ Four micro-contamination analytical laboratories
▪ Recurring revenues from the semiconductor and solar industries
Growth Drivers
❑ Total Wafer Starts / IC Production
❑ Increased utilization of equipment
Business Overview FY 2017 Revenue Breakdown
Historical Revenue and Adj. EBITDA Margin
QuantumClean89%
ChemTrace
11%
Segment Breakdown
United States66%EMEA
3%
Asia31%
Geography Breakdown
Source: Company information. 13
1
2
4
3
5
Quantum – A Compelling Transaction
Platform investment enhances UCT’s position as a differentiated
global solutions provider to the semiconductor industry
Expands UCT into a complementary adjacent market that broadens
addressable market
Increases durability and recurring nature of revenues; positioned for
growth as semiconductors become increasingly pervasive
Vertically integrated portfolio strengthens barriers to entry
Accretive to margins and free cash flow with attractive coverage ratios
14
QGT’s Services and Capabilities
All Semiconductor Manufacturing Processes Served
Materials Cleaned
Diffusion Etching Chemical Vapor
Deposition
Physical Vapor
Deposition
Atomic Layer Deposition
Lithography Implant Subfab
• Ultra-High purity, validated parts cleaning
• Performance coatings
• Quartz fabrication and repair
• Refurbishment and rebuilding
• Complex analytical and engineering services
• On-site logistics and support
Services Performed
Source: Company information.
Ta Coated Shield
Pre-Clean Post-Clean
Etch
Before and After Clean
15
Metals Aluminum
Stainless Steel
Titanium
Ceramics Alumina
Quartz
Silicon
Silicon Carbide
Other Anodized Aluminum
Coated materials
QGT has a Diverse Semiconductor Customer Base
Key QGT Growth Drivers
Source: Company information. Numbers have been rounded 17
2016 2017
Top 4 IDMs 56% 53%
Top 3 OEMs 28% 31%
Top 2 Foundries 4% 5%
All Other 12% 11%
Revenue $185M $218M
Wafer starts per year & global IC production:
• Semiconductor demand: – 280bn IC Units in 2017
– 7.2% CAGR from 2012-2017
– Projected to reach $503bn by 2020E
• Progression of node geometries:– 250% projected growth 2016-2019 for sub-
14nm silicon wafers
– Forecast of 3,000+ MSI by 2020
Engagements across semiconductor value chain increases resilience
QGT has an Advantaged Position
• Large customers more likely to engage with large, global suppliers who can meet their requirements
• Large number of regional players serve ~72% of market
❑ Primarily serve local fabs or small group of IC manufacturers with trailing edge technology nodes
• Industry drivers favor consolidation:
❑ Smaller players unable to invest & meet advanced technology nodes requirements
❑ Regional players cannot meet copy-exact needs of global fabs or OEMs
❑ Consolidation improves customer reach, capacity utilization and profitability
UHP Cleaning + Analytical Lab Services Market*
Source: QGT Management estimates.
Industry Highlights
18
14%
6%5%3%
72%
Competitor A Competitor B
Competitor C Others (~90 companies)
PAGE:
UCT’s New Global Footprint
16
Source: Company Information.
UCT Location
QGT LocationUKQGT
Czech Republic Plastic Machining & fabrication, Integration
IsraelQGT
Global footprint provides co-location with customers’ supply chain and capital efficient UCT business model
South San Francisco Precision Machining
HaywardWeldments, Gas Panels, Integration
FremontPrototyping Machine
HaywardThermal Systems
ChandlerSheet Metal, Frames, Integration
AustinWeldments, Gas Panel, Integration
KoreaQGT
ShanghaiWeldments, Gas Panels, Integration
PhilippinesWeldments, Modules
SingaporeGas Panel, Integration, Additive Manufacturing
PAGE:
MANUFACTURED COMPONENTS
GAS DELIVERY
METALS MACHINING
FRAMESSHEET METAL FORMING
THERMAL PRODUCTS
PLASTICS MACHINING
INTEGRATION & TEST
FLUID DELIVERY
PARTS CLEANING VALIDATION
Critical Value-Added Broad Capabilities
17
PROTOTYPE MACHINING
CHEMICAL DELIVERY SUB-SYSTEMS
One-stop for components & services across the value chain
SERVICES
Lam Research
Applied Materials
OtherLam
Research Applied Materials
#1 IDM
OtherLam
ResearchApplied Materials
#1 IDM
Other
Highly Complementary Product Mix and Customer Base
QGT acquisition reduces revenue exposure to top 2 customers by ~11% of total revenue
QGT has greater exposure to integrated device manufacturers (IDM)
Combined company is more balanced between WFE manufacturers and IDMs
❑ Diversifies UCT revenue away from dependence on LAM and OEMs
Potential for further customer diversification by exploring opportunities in QGT’s markets
QGT revenue based on semi equipment installed base, relatively stable during WFE downturns
❑ Shift toward wafer starts from WFE
❑ QGT has high stickiness as changing suppliers around process chamber is very risky
Source: Company information. Note: Ultra Clean & Quantum Global Technologies’ metrics as of FY2017.
Improvement in Customer Diversification
21
19
Investment Highlights
Capitalizing on opportunities in equipment manufacturing, parts cleaning, microcontamination analysis
Flexible, vertically integrated model supports significant growth and creates high barriers to entry
Key customers (OEM & IDM) enabling robust organic growth opportunities
Increasing recurring revenues driving financial leverage and strong operating profitability
Accelerating share growth through acquisitions
APPENDIX
21
UCT Record Revenue Growth Driving Financial Leverage
20152016
2017
$469.1$562.8
$924.4
20152016
2017
3.4%5.4%
10.3%
20152016
2017
$0.32$0.65
$2.34
Total Revenue$ in millions
Non-GAAP
operating margin(1)
Non-GAAP diluted
earnings per share (1)
(1) Non-GAAP results exclude intangible asset amortization and non-recurring expense items. See Appendix for reconciliation of GAAP to non-GAAP amounts.
• Q3’18 revenue $234M
• Q3’18 Non-GAAP operating margin 6.4%
20152016
2017
$0.9
$17.6
$48.9• Variable cost based operating model
• Targeting value-add, complex assemblies that support operating margin targets
• Focusing on capacity management- Extending capabilities and
simplifying operations
22
UCT Strong Cash Flow & Operating Profitability
Non-GAAP Operating margin (1)
GAAP Operating cash flow
$ in millions
(1) Non-GAAP results exclude intangible asset amortization and non-recurring expense items. See Appendix for reconciliation of GAAP to non-GAAP amounts.
3.4%
5.4%
10.3%
• Q3’18 Non-GAAP operating margin 6.4%
23
UCT Balance Sheet
• Inventory decrease due to
ongoing inventory reduction efforts
• Ongoing improvements in working
capital management
($ in Millions) Q3’18 Q4’17
Cash &
Investments$160.3 $68.3
Accounts
Receivable$95.1 $90.2
Inventory $198.6 $236.8
Total Assets $986.6 $563.4
Liabilities $539.9 $263.1
Shareholders’
Equity$446.7 $300.3
(in thousands) FY’15 FY’16 FY’17 Q1’18 Q2’18 Q3’18
Net income (loss) per GAAP basis $(10,732) $10,051 $75,085 $24,741 $18,960 $(5,997)
Amortization of intangible assets (1) $6,212 $5,757 $5,438 $1,098 $1,098 $2,411
Executive transition costs (2) $2,783 $925 - - $1,400 $246
Restructuring charges (3) $245 $251 - $874 - -
Consulting fees (4) - - - $150 - -
Acquisition costs (5) $642 - - - - $9,391
Impairment of “Held for Sale” Assets (6) - $666 - - - -
Termination of Contractual Obligation (7) - $438 - - - -
Reduction in force (8) - - - - - $1,319
Product transition fees (9) - - - - - $657
Disposal of business unit (10) - - - - - $1,082
Bank transaction costs (11) - - - - - $99
Income tax effect of non-GAAP adjustments (12) $(2,767) $(1,664) $(714) $(262) $(296) $(2,220)
Income tax effect of valuation allowance (13) $13,859 $4,964 $469 $(873) $303 $4,865
Non-GAAP net income $10,242 $21,388 $80,278 $25,728 $21,465 $11,853
24
Reconciliation: GAAP Net Income to Non-GAAP Net Income
1. Amortization of intangible assets related to the Company's acquisitions of AIT, Marchi and Miconex
2. Represents expense for termination benefits paid to former executives of the Company
3. Adjustment to previous restructuring reserve related to the abandonment of one of the Company's facilities
4. One-time consulting fees related to the expansion of the Company’s operations in Singapore
5. Costs incurred related to the acquisitions of Marchi and Miconex
6. Impairment of assets classified as “held for sale” related to our 3D printing business in Singapore
7. Amount paid related to the termination of a long-term contractual obligation to our 3D printing business in Singapore
8. Represents severance costs related to the company’s reduction in force during the quarter
9. One-time product transition payment
10. Represents the loss on disposal of the Company’s 3D printing operations in Singapore
11. Represents the write-off of debt issuance costs, bank fees related to the pay-off of remaining debt with East West Bank.
12. Tax effect on amortization of intangible assets, executive transition costs, restructuring charges, acquisition costs, impairment charges, and buy-out costs based on the non-GAAP tax rate
13. The Company's GAAP tax expense is generally higher than the Company's non-GAAP tax expense, primarily due to losses in the U.S. with full federal and state valuation allowances. The
Company's non-GAAP tax rate and resulting non-GAAP tax expense considers the tax implications as if there was no federal or state valuation allowance position in effect
(in thousands) FY’15 FY’16 FY’17 Q1’18 Q2’18 Q3’18
Reported GAAP income from operations $5,841 $22,391 $89,397 $26,908 $22,664 $922
Amortization of intangible assets (1) $6,212 $5,757 $5,438 $1,098 $1,098 $2,411
Executive transition costs (2) $2,783 $925 - - $1,400 $246
Restructuring charges (3) $245 $251 - $874 - -
Consulting fees (4) - - - $150 - -
Acquisition costs (5) $642 - - - - $9,391
Impairment of “Held for Sale” Assets (6) - $666 - - - -
Termination of Contractual Obligation (7) - $438 - - - -
Reduction in force (8) - - - - - $1,319
Product transition fees (9) - - - - - $657
Non-GAAP income from operations $15,723 $30,428 $94,835 $29,030 $25,162 $14,946
25
Reconciliation: GAAP Income from Operations to Non-GAAP Income from Operations
1. Amortization of intangible assets related to the Company's acquisitions of AIT, Marchi and Miconex
2. Represents expense for termination benefits paid to former executives of the Company
3. Adjustment to previous restructuring reserve related to the abandonment of one of the Company's facilities
4. One-time consulting fees related to the expansion of the Company’s operations in Singapore
5. Costs incurred related to the acquisition of Marchi and Miconex
6. Impairment of assets classified as “held for sale” related to our 3D printing business in Singapore
7. Amount paid related to the termination of a long-term contractual obligation to our 3D printing business in Singapore
8. Represents severance costs related to the company’s reduction in force during the quarter
9. One-time product transition payment
FY’15 FY’16 FY’17 Q1’18 Q2’18 Q3’18
Reported GAAP net income $(0.34) $0.30 $2.19 $0.66 $0.48 $(0.15)
Amortization of intangible assets (1) $0.20 $0.18 $0.16 $0.03 $0.03 $0.06
Executive transition costs (2) $0.09 $0.03 - - $0.04 $0.01
Restructuring charges (3) $0.01 $0.01 - $0.02 - -
Consulting fees (4) - - - $0.01 - -
Acquisition costs (5) $0.02 - - - - $0.24
Impairment of “Held for Sale” Assets (6) - $0.02 - - - -
Termination of Contractual Obligation (7) - $0.01 - - - -
Reduction in force (8) - - - - - $0.03
Product transition fees (9) - - - - - $0.02
Disposal of business unit (10) - - - - - $0.03
Bank transaction costs (11) - - - - - $0.00
Income tax effect of non-GAAP adjustments (12) $(0.09) $(0.05) $(0.02) $(0.01) $(0.01) $(0.06)
Income tax effect of valuation allowance (13) $0.43 $0.15 $0.01 $(0.02) $0.01 $0.12
Non-GAAP net income $0.32 $0.65 $2.34 $0.69 $0.55 $0.30
Weighted average number of diluted shares (in K) 31,564 33,150 34,303 37,491 39,297 38,930
26
Reconciliation: GAAP Earnings Per Diluted Share to Non-GAAP Earnings Per Diluted Share
1. Amortization of intangible assets related to the Company's acquisitions of AIT, Marchi and Miconex
2. Represents expense for termination benefits paid to former executives of the Company
3. Adjustment to previous restructuring reserve related to the abandonment of one of the Company's facilities
4. One-time consulting fees related to the expansion of the Company’s operations in Singapore
5. Costs incurred related to the acquisition of Marchi and Miconex
6. Impairment of assets classified as “held for sale” related to our 3D printing business in Singapore
7. Amount paid related to the termination of a long-term contractual obligation to our 3D printing business in Singapore
8. Represents severance costs related to the company’s reduction in force during the quarter
9. One-time product transition payment
10. Represents the loss on disposal of the Company’s 3D printing operations in Singapore
11. Represents the write-off of debt issuance costs, bank fees related to the pay-off of remaining debt with East West Bank
12. Tax effect of items above based on the non-GAAP tax rate each quarter
13. The Company's GAAP tax expense is generally higher than the Company's non-GAAP tax expense, primarily due to losses in the U.S. with full federal and state
valuation allowances. The Company's non-GAAP tax rate and resulting non-GAAP tax expense considers the tax implications as if there was no federal or state
valuation allowance position in effect
1UCT and one-time charges include income-tax effect of non-GAAP adjustments, restructuring fees reserved for severance and other costs related to the closure of the Company’s
operations in China, and one time consulting fees related to the expansion of the Company’s operations in Singapore.2QGT adjustments include one time acquisition related items and other non-recurring expenses.
GAAP to Non-GAAP Reconciliation EBITDA
34
Unaudited Reconciliation of Pro Forma Combined GAAP Net Income to Pro Forma Combined Adjusted EBITDA
LTM ended 6/29/2018
($ in millions)
UCT QGT Pro Forma Combined
GAAP Net Income 84$ 20$ 105$
Provision for Taxes 10 2 11
Interest and Other Expense, net 1 8 9
Depreciation 5 13 18
Amortization 5 2 8
Stock-Based Compensation 10 1 12
Other Non-recurring Items 2 2 5
Adjusted EBITDA 118$ 49$ 167$
Unaudited Combined Pro Forma Revenue
LTM ended 6/29/2018
($ in millions)
UCT QGT Pro Forma Combined
Revenue 1,097$ 231$ 1,327$
1UCT and one-time charges include income-tax effect of non-GAAP adjustments, restructuring fees reserved for severance and other costs related to the closure of the Company’s
operations in China, and one time consulting fees related to the expansion of the Company’s operations in Singapore.2QGT adjustments include one time acquisition related items, precious metal recovery, and other non-recurring expenses.
GAAP to Non-GAAP Reconciliation EBITDAUCT FYE Reconciliation of GAAP Net Income to Adjusted EBITDA
($ in millions) 2013 2014 2015 2016 2017
GAAP Net Income 10$ 11$ (11)$ 10$ 75$
Provision for Taxes 2 5 14 9 12
Interest & Other Expenses, Net 3 2 2 3 2
Depreciation 3 3 5 6 5
Amortization 6 5 6 6 5
Stock-Based Compensation 5 4 4 6 8
Other Non-recurring Items(1)
0 - 4 2 - Adjusted EBITDA 31$ 31$ 24$ 42$ 108$
Revenue 444$ 514$ 469$ 563$ 924$
QGT FYE Reconciliation of GAAP Net Income to Adjusted EBITDA
($ in millions) 2013 2014 2015 2016 2017
GAAP Net Income 6$ 5$ 15$ 9$ 22$
Provision for Taxes 0 1 1 1 2
Interest & Other Expenses, Net (2) 9 2 6 7
Depreciation 4 7 9 13 12
Amortization 3 2 2 2 2
Stock-Based Compensation 0 0 0 0 0
Other Non-recurring Items(2)
3 - 1 2 6 Adjusted EBITDA 14$ 24$ 30$ 33$ 50$
Revenue 108$ 145$ 179$ 185$ 218$
43