CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except per share data)

Twelve months ended

December 28,

December 29,

December 28,

December 29,

2017

2018

2017

Sales

$

257,389

$

248,886

$

1,096,523

$

924,351

Cost of goods sold

211,412

204,819

920,682

756,722

Gross profit

45,977

44,067

175,841

167,629

Operating expenses:

Research and development

4,059

3,264

13,287

11,666

Sales and marketing

5,032

3,684

16,306

13,748

General and administrative

26,676

15,162

85,544

52,818

Total operating expenses

35,767

22,110

115,137

78,232

Income from operations

10,210

21,957

60,704

89,397

Interest and other income (expense), net

(5,187)

(378)

(8,436)

(2,455)

Income before provision for income taxes

5,023

21,579

52,268

86,942

Income tax provision

5,335

730

15,319

11,857

Net income (loss)

(312)

20,849

36,949

75,085

Net income (loss) attributable to non-controlling interest

796

-

353

-

Net income (loss) attributable to Ultra Clean Holdings, Inc.

$

$

20,849

$

36,596

$

75,085

Net income (loss) per share attributable to Ultra Clean Holdings, Inc. common stockholders:

Basic

$

(0.03)

$

0.62

$

0.95

$

2.25

Diluted

$

(0.03)

$

0.60

$

0.94

$

2.19

Shares used in computing net income (loss) per share:

Basic

39,009

33,602

38,366

33,409

Diluted

39,009

34,500

38,919

34,303

ULTRA CLEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; in thousands)

December 28,

December 29,

2018

2017

ASSETS

Current assets:

Cash and cash equivalents

$

144,145

$

68,306

Accounts receivable, net of allowance

108,024

90,213

Inventory

186,116

236,840

Other current assets

21,088

12,089

Total current assets

459,373

407,448

Equipment and leasehold improvements, net

142,922

32,246

Goodwill

155,472

85,248

Purchased intangibles, net

193,707

31,587

Deferred tax assets, net

2,323

4,951

Other non-current assets

8,110

1,932

Total assets

$

961,907

$

563,412

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Bank borrowings

$

9,671

$

12,381

Accounts payable

99,011

173,521

Other current liabilities

33,542

21,445

Total current liabilities

142,224

207,347

Bank borrowings, net of current portion

331,549

39,893

Deferred tax liability

7,990

9,981

Other long-term liabilities

28,497

5,886

Total liabilities

510,260

263,107

Stockholders' equity:

Common stock

287,127

185,336

Retained earnings

149,718

113,122

Accumulated other comprehensive income (loss)

(886)

1,847

Ultra Clean Holdings, Inc. stockholders' equity

435,959

300,305

Noncontrolling interest

15,688

-

Total stockholders' equity

451,647

300,305

Total liabilities and stockholders' equity

$

961,907

$

563,412

ULTRA CLEAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in thousands)

Twelve Months Ended

December 28,

December 29,

2018

2017

Cash flows from operating activities:

Net income including noncontrolling interests

$ 36,949

$ 75,085

Adjustments to reconcile net income to net cash provided by operating activities (excluding assets acquired and liabilities assumed):

Depreciation and amortization

21,907

10,865

Stock-based compensation

10,272

7,757

Others

(308)

(206)

Changes in assets and liabilities:

Accounts receivable

7,694

(14,930)

Inventories

50,151

(131,874)

Prepaid expenses and other

(2,407)

(4,911)

Deferred income taxes

(82)

(3,755)

Other non-current assets

(162)

(582)

Accounts payable

(82,951)

99,569

Accrued compensation and related benefits

2,048

2,777

Income taxes payable

798

8,177

Other liabilities

1,474

933

Net cash provided by operating activities

45,383

48,905

Cash flows from investing activities:

Purchases of equipment and leasehold improvements

(29,487)

(16,149)

Acquisition of Quantum, net of cash acquired

(319,781)

—

Net cash used for investing activities

(16,149)

Cash flows from financing activities:

Proceeds from bank borrowings

387,054

15,076

Proceeds from issuance of common stock

94,611

1,816

Principal payments on bank borrowings

(86,354)

(31,248)

Debt issuance costs paid

(12,144)

—

Employees' taxes paid upon vesting of restricted stock units

(3,092)

(2,714)

Net cash provided by (used for) financing activities

380,075

(17,070)

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

$ 75,839

$ 15,841

Cash and cash equivalents at beginning of period

68,306

52,465

Cash and cash equivalents at end of period

$ 144,145

$ 68,306

ULTRA CLEAN HOLDINGS, INC.

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

Three Months Ended

Twelve Months Ended

December 28,

December 29,

September 28,

December 28,

December 29,

2018

2017

2018

2018

2017

Reconciliation of GAAP Net Income (loss) to Non-GAAP Net Income (in thousands)

Reported net income (loss) attributable to Ultra Clean Holdings, Inc. on a GAAP basis

$ 20,849

$ (5,997)

$ 36,596

$ 75,085

Amortization of intangible assets (1)

4,973

1,745

2,411

9,580

5,438

Reduction in force (2)

297

-

1,319

2,640

-

Product transition fees (3)

-

-

657

657

-

Executive transition costs (4)

418

-

246

2,064

-

Disposal of business unit (5)

-

-

1,082

1,082

-

Bank transaction costs (6)

-

-

99

99

-

Acquisition costs (7)

613

-

9,391

10,003

-

Facility lease early exit costs (8)

117

-

-

117

-

Income tax effect of non-GAAP adjustments (9)

(1,101)

(229)

(2,220)

(4,501)

(714)

Income tax effect of valuation allowance (10)

4,474

(2,096)

4,865

6,355

469

Non-GAAP net income attributable to Ultra Clean Holdings, Inc.

$ 8,683

$ 20,269

$ 11,853

$ 64,692

$ 80,278

Reconciliation of GAAP Income from operations to Non-GAAP Income from operations (in thousands)

Reported income from operations on a GAAP basis

$ 10,210

$ 21,957

$ 922

$ 60,704

$ 89,397

Amortization of intangible assets (1)

4,973

1,745

2,411

9,580

5,438

Reduction in force (2)

297

-

1,319

2,640

-

Product transition fees (3)

-

-

657

657

-

Executive transition costs (4)

418

-

246

2,064

-

Acquisition costs (7)

613

-

9,391

10,003

-

Facility lease early exit costs (8)

117

-

-

117

-

Non-GAAP income from operations

$ 16,628

$ 23,702

$ 14,946

$ 85,765

$ 94,835

Reconciliation of GAAP Operating margin to Non-GAAP Operating margin

Reported operating margin on a GAAP basis

4.0%

8.8%

0.4%

5.5%

9.7%

Amortization of intangible assets (1)

1.9%

0.7%

1.0%

0.9%

0.6%

Reduction in force (2)

0.1%

0.0%

0.6%

0.2%

0.0%

Product transition fees (3)

0.0%

0.0%

0.3%

0.1%

0.0%

Executive transition costs (4)

0.2%

0.0%

0.1%

0.2%

0.0%

Acquisition costs (7)

0.3%

0.0%

4.0%

0.9%

0.0%

Facility lease early exit costs (8)

0.0%

0.0%

0.0%

0.0%

0.0%

Non-GAAP operating margin

6.5%

9.5%

6.4%

7.8%

10.3%

Reconciliation of GAAP Gross profit to Non-GAAP Gross profit (in thousands)

Reported gross profit on a GAAP basis

$ 45,977

$ 44,067

$ 34,995

$ 175,841

$ 167,629

Amortization of intangible assets (1)

1,363

-

-

1,363

-

Reduction in force (2)

297

-

1,197

2,431

-

Product transition fees (3)

-

-

657

657

-

Executive transition costs (4)

418

-

-

418

-

Non-GAAP gross profit

$ 48,055

$ 44,067

$ 36,849

$ 180,710

$ 167,629

Reconciliation of GAAP Gross margin to Non-GAAP Gross margin

Reported gross margin on a GAAP basis

17.9%

17.7%

15.0%

16.0%

18.1%

Amortization of intangible assets (1)

0.5%

0.0%

0.0%

0.1%

0.0%

Reduction in force (2)

0.0%

0.0%

0.4%

0.2%

0.0%

Product transition fees (3)

0.1%

0.0%

0.3%

0.1%

0.0%

Executive transition costs (4)

0.2%

0.0%

0.0%

0.1%

0.0%

Non-GAAP gross margin

18.7%

17.7%

15.7%

16.5%

18.1%

Reconciliation of GAAP Interest and other income (expense) to Non-GAAP Interest and other income (expense) (in thousands)

Reported interest and other income (expense) on a GAAP basis

$ (5,187)

$ (378)

$ (2,766)

$ (8,436)

$ (2,455)

Disposal of business unit (5)

-

-

1,082

1,082

-

Bank transaction costs (6)

-

-

99

99

-

Non-GAAP interest and other income (expense)

$ (378)

$ (1,585)

$ (7,255)

$ (2,455)

1 Amortization of intangible assets related to the Company's acquisitions of AIT, Thermal, FDS and QGT

2 Represents severance costs related to the company's reduction in force during the quarter

3 One-time product transition payment

4 Represents termination benefits paid to a former executive of the Company

5 Represents the loss on disposal of the Company's 3D printing operations in Singapore

6 Represents the writeoff of debt issuance costs, bank fees related to the payoff of remaining debt with East West Bank.

7 Represents costs related to the acquisition of QGT

8 Represents lease related costs due to the early exit of a facility

9 Tax effect of items (1) through (8) above based on the non-GAAP tax rate shown below

10 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.

ULTRA CLEAN HOLDINGS, INC.UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

Three Months Ended

Twelve Months Ended

December 28,

December 29,

September 28,

December 28,

December 29,

2018

2017

2018

2018

2017

Reconciliation of GAAP Earnings Per Diluted Share to Non-GAAP Earnings Per Diluted Share

Reported net income (loss) on a GAAP basis

(0.03)

$ 0.60

$ (0.15)

$ 0.94

$ 2.19

Amortization of intangible assets

0.13

0.05

0.06

0.25

0.16

Reduction in force

0.01

-

0.03

0.07

-

Product transition fees

-

-

0.02

0.02

-

Executive transition costs

0.01

-

0.01

0.05

-

Disposal of business unit

-

-

0.03

0.03

-

Bank transaction costs

-

-

-

0.00

-

Acquisition costs

0.02

-

0.24

0.26

-

Facility lease early exit costs

0.00

-

-

0.00

-

Income tax effect of non-GAAP adjustments

(0.03)

(0.01)

(0.06)

(0.12)

(0.02)

Income tax effect of valuation allowance

0.12

(0.05)

0.12

0.16

0.01

Non-GAAP net income

$ 0.23

$ 0.59

$ 0.30

$ 1.66

$ 2.34

Weighted average number of diluted shares (thousands)

39,009

34,500

38,930

38,919

34,303

ULTRA CLEAN HOLDINGS, INC.

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP EFFECTIVE INCOME TAX RATE

Three Months Ended

Twelve Months Ended

December 28,

December 29,

September 28,

December 28,

December 29,

2018

2017

2018

2018

2017

(in thousands, except percentages)

Provision for income taxes on a GAAP basis

$ 5,335

$ 730

$ 4,596

$ 15,319

$ 11,857

Income tax effect of non-GAAP adjustments (1)

1,101

229

2,220

4,501

714

Income tax effect of valuation allowance (2)

(4,474)

(4,865)

(6,355)

Non-GAAP provision for income taxes

$ 1,962

$ 3,055

$ 1,951

$ 13,465

$ 12,102

Income (loss) before income taxes on a GAAP basis

$ 5,023

$ 21,579

$ (1,844)

$ 52,268

$ 86,942

Amortization of intangible assets

4,973

1,745

2,411

9,580

5,438

Reduction in force

297

-

1,319

2,640

-

Product transition fees

-

-

657

657

-

Executive transition costs

418

-

246

2,064

-

Disposal of business unit

-

-

1,082

1,082

-

Bank transaction costs

-

-

99

99

-

Acquisition costs

613

-

9,391

10,003

-

Facility lease early exit costs

117

-

-

117

-

Non-GAAP income before income taxes

$ 11,441

$ 23,324

$ 13,361

$ 78,510

$ 92,380

Effective income tax rate on a GAAP basis

106.2%

3.4%

-249.2%

29.3%

13.6%

Non-GAAP effective income tax rate

17.2%

13.1%

14.6%

17.2%

13.1%

1 Tax effect of items (1) through (8) above based on the non-GAAP tax rate

2 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.