Good afternoon, and welcome to the Ultra Clean fourth quarter and full year 2021 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Ron, excuse me, Rhonda Bennetto, Investor Relations. 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 the financial review, and then we'll 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. With that, I'd like to turn the call over to Jim. Jim?
Thank you, Rhonda, and thank you all for joining us today. I'm going to start with a brief review of our fourth quarter and full-year results, and then provide an update on current events, and conclude with our thoughts on why we believe 2022 will be another year of growth for the WFE market. Following that, I'll turn the call over to Sheri for our financial review, and then we'll open up the call for questions. With intense industry demand as a tailwind and UCT executing at peak levels, we exited 2021 with record financial results. Global revenue for the fourth quarter grew 66% compared to the same period last year and rose by more than 50% for the year compared to 2020.
Fourth quarter earnings per share grew 50% when compared to the same period a year ago, and 50% for the full year of 2020. UCT consistently outperforms the markets we serve and outpaces the majority of companies supporting the WFE system. These results are extraordinary given the challenging business conditions felt around the world over the past 2 years. I want to again thank each of our 7,000+ employees for their contributions to our success. Responding together as a team, leveraging our global footprint and talent pool, and optimizing our operations, we were able to skillfully navigate many obstacles and adapt quickly to the operational complexities associated with the pandemic, including global supply chain challenges. Recently, the Omicron surge placed additional pressure on an already strained supply chain and labor force.
We are actively collaborating with our customers and suppliers, including qualifying new suppliers, to maximize our output capability and meet our customers' delivery schedules. UCT's global footprint enables us to leverage economies of scale, and our procurement teams have found innovative ways to limit risk by increasing resiliency and efficiency in our supply chain. To a large extent, UCT has not been the limiting factor in the supply chain for on-time deliveries. Our global sites have been experiencing elevated levels of skilled labor absenteeism. However, we have been able to minimize the effect on our delivery schedules, and the situation is already improving. Despite the extremely high levels of demand, supply chain constraints may continue for some time, and we have factored that into our first quarter guidance. Our financial performance is not the only measure we use to validate our success.
We know we are doing the right things for our customers when we get recognized for our efforts. Winning Intel's award last year for extraordinary performance, innovation, and resolve in the face of pandemic-related supply chain challenges, and then being invited to partner with them on their recently announced Ohio mega facility amplifies our position as a strategic partner of choice and deepens our engagement at the leading edge. We are constantly challenging the status quo and increasing our position in the value chain by meeting our customers' most complex needs and partnering early with them on their growth plans. We entered 2022 from a position of strength in our sector and expect that momentum to continue as visibility and demand are greater than they've ever been. Our capacity expansion plans are progressing, not only in Malaysia, but in other strategic locations around the world for Products and Services.
This will enable us to meet regional capacity requirements, expand our global supply chain reach, and ensure our output capability aligns with the industry. Continued vertical integration with our current customers and capitalizing on many opportunities we see to attract new customers supports our strategic roadmap for continued outperformance. Increases in device complexity supporting rapid advances in artificial intelligence, high performance computing, automotive electronics, data centers, 5G, and virtual and augmented reality in gaming are the main drivers behind the increase in WFE demand. Supporting this growth will be 20+ new fabs currently being built, with some IDMs already increasing their capital investments to accelerate construction this year. This is especially true in the U.S., where significant government support was recently announced in an important step to strengthen the country's leadership in the chip industry.
Based on current sentiment and peer reports, and confirmed by our internal market expertise, we now expect WFE to potentially reach the $100 billion range by the end of this year. UCT's broad exposure to the entire fab construction, equipment build-out, and production support ecosystems, together with our strategic capacity expansion plans, sets the stage for another year of growth for UCT. In closing, we are executing at every level and will continue to drive innovation throughout our comprehensive portfolio of Products and Services to enhance our leadership position. With demand skyrocketing, the trend towards outsourcing remains intact, and UCT has never been more ideally positioned to expand our business with our current customers, attract new customers, and gain share over the long term. With that, I'd like to turn the call over to Sheri for a review of our financial results. Sheri?
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 revenue for the fourth quarter was up 11% over the prior quarter to $615.1 million. Our Products division grew 10.8% to $533.9 million, which includes Ham-Let revenue of $64.9 million. Our Services division rose 13.4% to $81.3 million due to increased sales across a number of customers. Increased demand throughout 2021 resulted in total record revenue of $2.1 billion, up 50.3% from the prior year.
Products generated revenue of $1.8 billion, up 59.5% year-over-year, and includes $187.5 million from three quarters of Ham-Let revenue contribution. Services contributed $297.7 million, growing 11.3% over the prior year. Going forward, we will be including revenue from Ham-Let in our Products division financial reporting. Total gross margin for the fourth quarter was 21.5%, in line with our newly updated model, compared to 21.6% last quarter. Products gross margin was 19.1%, compared to 19.3% last quarter, and Services was 37.1%, compared to 36.9% last quarter. Margins can be influenced by customer concentration, geography, product mix, and volume, so there will be variances quarter to quarter.
Total gross margin for the year was 21.4%, the same as the prior year. Operating expense for the quarter was $54.6 million, compared with $50.9 million in Q3. As a percentage of revenue, operating expense declined slightly to 8.9%, compared to 9.2% in the prior quarter. For the year, with revenue up 50.3%, operating expense as a percentage of revenue declined to 9.2%, compared to 10.1% in the prior year. Total operating margin for the quarter improved to 12.6%, compared to 12.4% in the third quarter, also in line with our newly published model. Margin from our Products division was 11.8%, compared to 11.9% in the prior quarter.
Operating margin from Services increased to 17.9% from 15.4% in the prior quarter due to higher volumes and operating efficiencies. Demonstrating strong operating leverage on our revenue growth in 2021, total operating margin for the year was 12.2%, a sizable improvement from 11.3% in the prior year. We anticipate additional margin accretion as our lower cost regions incrementally contribute to overall revenue over time. Based on 45.5 million shares outstanding, earnings per share for the quarter increased to $1.22 on net income of $55.5 million, compared to $1.07 on net income of $48.8 million in the prior quarter.
For the full year, earnings per share was $4.20 on net income of $186.1 million, compared to $2.80 on net income of $115 million in 2020, an increase in earnings per share of 50% year-over-year. Our tax rate for the quarter was 15.8%, compared to 15.5% last quarter. For the full year, our tax rate was 16.6%. We expect our tax rate for 2022 to stay in the mid- to high teens. Turning to our balance sheet, our cash and cash equivalents were $466.5 million at the end of the fourth quarter, compared to $457 million last quarter.
Cash from operations was $43 million compared to $53.3 million in the prior quarter due to increased inventory levels to meet demand. From the full year, cash from operations more than doubled from $97.3 million in 2020 to $213.1 million. During the fourth quarter, we made another additional Term B loan payment, bringing our total payments for the year to $75 million. With demand outpacing what the overall equipment industry can deliver, uncertainty around global supply chain and higher costs typically associated with year-end, we are widening our guidance range and are projecting total revenue for the first quarter of 2022 between $580 million and $630 million. We expect EPS in the range of $1.06-$1.26.
With that, I'd like to turn the call over to the operator for questions.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question is from Quinn Bolton with Needham & Company. Please go ahead.
Hi, guys. Congratulations on the nice fourth quarter results and full year 2021 results as well. Wanted to ask, obviously the entire industry has faced, you know, tougher supply chain conditions in the near term. Some of that's component availability, some of it's Omicron. Looks like you faced some of that as well. Wondering if you might be able to quantify for us, you know, how much revenue might have been impacted in both the fourth quarter as well as potentially in the first quarter guidance from some of those supply chain effects.
Yeah. Hi. Thanks, Quinn. I think if I recall, in the fourth quarter, I think demand outstripped our what we could ship and also what our customers could take because of their issues as well by about roughly $30 million. As we look forward in the first quarter, especially with the Omicron spike that we saw and continued supply chain issues, you know, I think we're looking at more like a $40 million bogey in the first quarter. I think things got a little worse for the first quarter, but part of that was because of the big spike in the Omicron cases. We think it should start to stabilize, you know, maybe flatten out or maybe even improve a little bit in the second quarter.
That's the effect of supply versus demand that you're referring to rather than total revenue?
Yeah. I think, in other words, if our customers could have taken it or if we had been able to get the parts, then, you know, that was kind of the overhang, the $30 million and the $40 million numbers. You know, it affected everybody, as you know. Yeah, that's it. That's it, Quinn.
The second question I have is just sort of a longer term outlook. I know you're only giving formal guidance for the first quarter, but I think most companies in the industry, you know, certainly reflecting the current supply chain constraints sort of see WFE and revenue as sort of being a little bit more back half weighted than front half weighted. Is there any reason to think that UCT would see a different pattern? Or should we think, you know, you guys are expecting sort of a back half loaded year as well?
No, I think we're expecting exactly the same path. If you recall, a quarter or two ago, we were concerned about the second half. We knew the first half was really strong. I think in the last three to four months, what we've seen is that we expect the back half of this year to actually continue to move up. Obviously, we'll have to keep growing our capacities and keep meeting the needs. Yeah, we expect UCT will perform, you know, continually, gradually moving up from here.
Great. Thank you, Jim.
Thanks, Quinn.
The next question is from Tom Diffely with D.A. Davidson. Please go ahead.
Yes, good afternoon, and thanks for the question. Yeah, I guess first on the guided range, you know, the wider than normal guided range, is that, you know, basically conservatism 'cause of the environment we're in? Are there specific issues that you're dealing with right now that cause you to be, you know, have more heightened concern about things falling through?
Well, you know, a couple things we've seen is the dynamics changed a little bit where we were chasing 10% of the parts, and you know, now we're chasing more like 1% or 2% or 3% of the parts. They have, you know, unless you have them all, you're in the same boat. I think, you know, we've also seen some reshuffling of when our customers are able to take the product because of the, you know, their supply chain issues as well. That caused more uncertainty. The demand is there. You know, I feel very confident in our ability to execute and to close, you know, close on that gap to some extent. There's still a lot of unknowns that are kind of out of our hands.
Okay. No, that makes sense. Jim, when you look at capacity expansion over the next several quarters, you know, for you, is it more of a labor issue, a tooling issue, or, you know, the supply chain issues continuing?
Yeah, I think, you know, a big part of the capacity expansion in the next few quarters is predicated on Malaysia continuing to ramp up. As we move beyond that to three or four quarters out or five, you know, in the next year, we're also expanding some of our U.S. sites a bit to more capacity. In the short term, to your question, I think we feel we'll be able to keep, you know, ramping with the industry, and a lot of that's gonna fall on Malaysia's ramp.
Okay, great. Final question. When you look at the variability of the margins in your guidance, you know, is that product-based at all, or is it strictly just volume or overhead absorption?
I would say it's volume and mix based. It just depends. Obviously, it changes quarter to quarter, depending upon what we're gonna ship and from where and from what business unit. The volatility is really surrounding that as well as what point we are within the cycle. You know, as we tend to go up, we tend to have higher margins, and as things potentially come down, it tends to take a little longer to get costs out, so it tends to be a little bit lower. Generally, there's many factors that go into it.
Okay. Well, thank you both for the questions today.
Thank you, Tom.
Thank you.
The next question is from Patrick Ho with Stifel. Please go ahead.
Thank you very much, and congrats on a nice year in 2021. Jim, maybe first for you. In terms of the Services business, you know, how much capacity do you need to expand to serve not only Intel per that announcement, but for some of your other customers that are growing there? You've talked a lot about capacity expansion, particularly for your Products business group. Can you just give a little bit of color on the types of expansion plans for the Services business?
Yeah. Good question, Patrick. Thank you. We definitely have been proactively expanding our joint venture. Cinos has been expanding. If you recall from the fire when we first bought the business, when one of the buildings came down, we kind of built that out to really grow Samsung. That's kind of in play. With Intel, you know, there'll be a new greenfield site in Ireland that we're working on that will come up maybe next year. Then we're doing more kind of incremental expansion of capability in some of our existing sites, like in Arizona, for example. I think, you know, there's incremental as we go.
It's definitely something that, you know, we can manage or we've already kind of, you know, those things are a longer kind of runway. You know, we're working hand in hand with the chip makers as they put in new fabs or they expand their fabs. You know, we work hand in hand to expand, you know, our capacity either to put a new fab next to where they are going to be, you know, or to add capacity. It's a longer runway, so we have those pretty well in hand.
Great. Maybe as my follow-up question on the product side of the business, you know, one thing we're seeing a lot more, at least with chip makers and equipment companies, is more collaboration, more joint programs to work on next generation devices. On the OEM side of things, can you discuss or maybe give a little bit of color on your increased collaborative efforts with your customers and maybe how you can add even more value to them and in the long run, enhance your gross margin profile?
Yeah, sure. You know, obviously I have to speak a little bit generically on this. We've definitely embedded a significant amount of engineers who actually sit on the sites of not only our major customers, but some of the customers that we're really trying to grow. For example, one litho customer. We definitely have. We've always had that presence. We've always been there for DFM, design for manufacturing, but I think we're seeing our scope expand, like you mentioned. That's something that if you look at our OpEx line, if you look at our R&D line, you've probably seen that creep up over time. A part of that is due to that.
It's absolutely, I think it obviously can improve the margin because you're, you know, you come out of the gate as the supplier. There's not as much, you know, competitive pressure, you know. It also obviously helps with share gain when you come out of a new product introduction as the, you know, be partnered suppliers, you know. I think it has multiple effects to really be involved from the very beginning through product launch and then, you know, ramping up through to high volume. I think, you know, another factor too is we can do that in so many different places.
You know, we're so globally, you know, expansive that we can bring it up wherever we need to close to where the engineers are and our customers, and then we can transition it over to our high volume manufacturing in Singapore, China, or now Malaysia to really ramp it up. It's something our customers really value.
Great. Thank you very much.
Thank you, Patrick.
Again, if you have a question, please press star then one. The next question is from Krish Sankar with Cowen. Please go ahead.
Hi, this is Robert Mertens on behalf of Krish. Thanks for taking my question. I guess first on the supply chain, are there any areas that are particularly challenging, whether it's acquiring components or your inability to ship products, logistics? And I guess is there a way to further quantify this $40 million headwind in the March quarter? And then I guess how should we think about the costs associated with and the gross margin impact from the qualification of new suppliers?
I'll answer the second one first, 'cause that's easy. It's that there's no significant cost of bringing on or qualifying new suppliers. It's pretty negligible. And it's often funded. But the first part, you know, it's really hard to say. I mean, obviously, you know, things that have computer chips in it, the lower end chips have been really challenging. There's some specialty machined parts and specialty components, you know, which are specced into the tools and sole sourced by our customers sometimes or by ourselves. Those, it could be the one off here and one off there. It's really hard to say this is a big problem or that's a big problem. Every few weeks it kind of moves around like, you know, like a whack-a-mole game.
I think anything that has a lower end computer chip is always challenging. Anything that contains circuit boards with that is often very challenging. As well as I mentioned, some specialty machines, components or you know, actually there's a shortage of the components that Fluid Solutions makes. You know, the valves, connectors and things like that. There's an overall shortage in the market as well. It's many different areas. Hard to put a finger on it, which is you know why you know we're being relatively you know broad in our range for the first quarter.
Great. Thank you. That's helpful. Just a quick one on the Ham-Let. Just to make sure I heard correctly, did you say that was about $65 million in the quarter? Was there any color given on the business margins or expectations in the March quarter?
Yeah, it was $64.9 million. No, we're not providing margin guidance on that, but they are definitely falling into our Products 8%-13% operating margin that we have put out in our new model. We have brought them up into that range as part of obviously the acquisition and working with them on their cost structure and their expanded revenue that they've had.
Okay. All right. Well, thank you so much. That, that's all I had.
Thanks so much.
Yeah, thanks, Robert.
This concludes our question and answer session. I would like to turn the conference back over to Mr. Scholhamer for any closing remarks.
Thank you all for attending. We remain very optimistic, very proud of what we've done this last quarter, this year and going forward. We look forward to talking to you again in April. Thank you very much.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.