Ultra Clean Holdings, Inc. 10-Q

ITEM 2. Management’s Discussion And Analysis of Financial Condition And Results Of Operations You should read the following discussion of our financial condition and results of operations in conjunction with the Condensed Consolidated Financial Statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed with the SEC on February 23, 2026. This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve substantial risks and uncertainties. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, including, but not limited to, statements regarding our expectations, beliefs, intentions, strategies, future operations, future financial position, future revenue, projected expenses, gross margins and plans and objectives of management. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “will,” “would,” “should,” “could,” “can,” “predict,” “potential,” “continue,” “objective,” or the negative of these terms, and similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. These forward-looking statements reflect our current views about future events and involve known risks, uncertainties and other factors that may cause our actual results, performance or achievement to be materially different from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed with the SEC on February 23, 2026. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Overview Ultra Clean Holdings, Inc., (“UCT”, the “Company” or “We”) is a leading developer and supplier of critical subsystems, components, parts, and ultra-high purity cleaning and analytical services primarily for the semiconductor industry. UCT offers its customers an integrated outsourced solution for major subassemblies, improved design-to-delivery cycle times, design for manufacturability, prototyping and part and component manufacturing, as well as tool chamber parts cleaning and coating, and micro-contamination analytical services. We report results for two segments: Products and Services. Our Products segment primarily designs, engineers and manufactures production tools, components and parts, and modules and subsystems for the semiconductor and display capital equipment markets. Products include chemical delivery modules, frame assemblies, gas delivery systems, fluid delivery systems, precision robotics, process modules as well as other high-level assemblies. Our Services segment provides ultra-high purity parts cleaning, process tool part recoating, surface encapsulation and high sensitivity micro contamination analysis primarily for the semiconductor device makers and wafer fabrication equipment (“WFE”) markets. We ship a majority of our products and provide most of our services to U.S. registered customers with both domestic and international locations. In addition to U.S. manufacturing and service operations, we manufacture products and provide parts cleaning and other related services in our Asia Pacific, Europe and Middle East (“EMEA”) facilities to support local and U.S. based customers. We conduct our operating activities primarily through our subsidiaries. Over the long term, we believe the semiconductor market we serve will continue to grow due to multi-year industry demand from a broad range of drivers, such as new process architecture (e.g. gate all around) and memory devices (e.g. high bandwidth memory) necessary for cloud, artificial intelligence (“AI”) and machine learning (“ML”) applications. We also believe that semiconductor original equipment manufacturers (“OEM”) are increasingly relying on partners like UCT to fulfill their expanding capacity requirements. Additionally, our Services business is benefiting as device manufacturers rely on precision cleaning and coating to achieve ever more advanced devices. In March 2026, the Company completed a significant financing transaction, issuing $600.0 million of convertible notes and using a portion of the proceeds to repay its term loan and enter into capped call transactions. Separately, the Company repurchased 0.7 million shares for $40.3 million through privately negotiated transactions at market price. See Note 5 - Long-Term Debt, of our Condensed Consolidated Financial Statements, for additional information. Critical Accounting Estimates Our Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure at the date of our Condensed Consolidated Financial Statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to inventories, income taxes, business combinations, contingent earn-out liabilities and goodwill, intangible assets and long-lived assets. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the - 26 - Table of Contents circumstances, the results of which form the basis of our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. We consider certain accounting policies related to revenue recognition, inventory valuation, accounting for income taxes, business combinations, valuation of goodwill, intangible assets and long-lived assets to be critical policies due to the estimates and judgments involved in each. There have been no significant changes to our critical accounting policies, significant judgments and estimates disclosed in our Annual Report on Form 10-K subsequent to December 26, 2025. For further information on our critical and other significant accounting policies and estimates, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 26, 2025, as filed with the SEC. Results of Operations Fiscal Year Our fiscal year consists of a 52- or 53-week period. Fiscal year 2026 is a 53-week period ending January 1, 2027, and fiscal year 2025 was a 52-week period ended December 26, 2025. The fiscal quarters ended June 26, 2026 and June 27, 2025 were both 13-week periods. Discussion of Results of Operations for the Three and Six months ended June 26, 2026 compared to the Three and Six months ended June 27, 2025 Revenues Three Months Ended Six Months Ended Revenues by Segment (Dollars in millions) June 26, 2026 June 27, 2025 Percent Change June 26, 2026 June 27, 2025 Percent Change Products $ 572.7 $ 454.9 25.9% $ 1,038.4 $ 911.9 13.9% Services 72.2 63.9 13.0% 140.2 125.5 11.7% Total revenues $ 644.9 $ 518.8 24.3% $ 1,178.6 $ 1,037.4 13.6% Products as a percentage of total revenues 88.8% 87.7% 88.1% 87.9% Services as a percentage of total revenues 11.2% 12.3% 11.9% 12.1% For the three and six month periods ended June 26, 2026, Products revenues increased compared to the same periods in the prior year, primarily due to an increase in customer demand, driven by an overall market improvement in the semiconductor industry. Services revenues increased for the three and six month periods ended June 26, 2026 compared to the same periods in the prior year, primarily due to an increase in demand across its customer base. Three Months Ended Six Months Ended Revenues by Geography (Dollars in millions) June 26, 2026 June 27, 2025 Percent Change June 26, 2026 June 27, 2025 Percent Change United States $ 141.9 $ 134.6 5.4% $ 271.3 $ 257.6 5.3% International 503.0 384.2 30.9% 907.3 779.8 16.4% Total revenues $ 644.9 $ 518.8 24.3% $ 1,178.6 $ 1,037.4 13.6% United States as a percentage of total revenues 22.0% 25.9% 23.0% 24.8% International as a percentage of total revenues 78.0% 74.1% 77.0% 75.2% Revenues by geographic area are categorized based on the location to which the products were shipped or the location where services were performed. For the three and six months ended June 26, 2026, U.S. and international revenues increased compared to the same periods in the prior year, primarily reflecting improved conditions in the semiconductor capital equipment market, which drove higher customer demand across multiple regions. International revenue grew faster than U.S. revenue in both periods, shifting the geographic mix further toward international. - 27 - Table of Contents Cost of Revenues Three Months Ended Six Months Ended Cost of revenues by Segment (Dollars in millions) June 26, 2026 June 27, 2025 Percent Change June 26, 2026 June 27, 2025 Percent Change Products $ 488.8 $ 393.3 24.3% $ 889.5 $ 783.5 13.5% Services 52.4 46.0 13.9% 101.0 90.4 11.7% Total Cost of revenues $ 541.2 $ 439.3 23.2% $ 990.5 $ 873.9 13.3% Products cost as a percentage of total Products revenues 85.4% 86.5% 85.7% 85.9% Services cost as a percentage of total Services revenues 72.6% 72.0% 72.0% 72.0% Products cost of revenue consists of purchased materials, direct labor and manufacturing overhead. For the three-month period ended June 26, 2026, Products cost of revenue increased by $95.5 million compared to the same period in the prior year. The increase was primarily driven by higher material and labor costs of $81.8 million and $18.4 million, respectively, associated with increased production activity, partially offset by a decrease in manufacturing overhead costs of $4.7 million. For the six-month period ended June 26, 2026, Products cost of revenue increased by $106.0 million compared to the same period in the prior year. The increase was primarily driven by higher material and labor costs of $80.6 million and $27.8 million, respectively, associated with increased production activity, partially offset by a decrease in manufacturing overhead costs of $2.4 million. Services Cost of revenues consists of direct labor, overhead, and materials such as chemicals, gases and consumables. For the three and six month periods ended June 26, 2026, Services Cost of revenues increased by $6.4 million and $10.6 million, respectively, compared to the same periods in the prior year. The increase for the three-month period was primarily driven by higher service volume, which resulted in increased labor, overhead, and material costs of $3.7 million, $1.7 million and $1.0 million, respectively. The increase for the six-month period was primarily driven by higher service volume, which resulted in increased labor, overhead, and material costs of $5.9 million, $3.0 million and $1.7 million, respectively. Gross Margin Three Months Ended Six Months Ended Gross Profit by Segment (Dollars in millions) June 26, 2026 June 27, 2025 Percent Change June 26, 2026 June 27, 2025 Percent Change Products $ 83.9 $ 61.6 36.2 % $ 148.9 $ 128.4 16.0 % Services 19.8 17.9 10.6 % 39.2 35.1 11.7 % Gross profit $ 103.7 $ 79.5 30.4 % $ 188.1 $ 163.5 15.0 % Gross Margin by Segment Products 14.6% 13.5% 14.3% 14.1% Services 27.4% 28.0% 28.0% 28.0% Total Company 16.1% 15.3% 16.0% 15.8% Gross profit and gross margins fluctuate with revenue levels, product mix, material costs, and labor costs. Products gross profit and margin increased for the three and six month periods ended June 26, 2026 compared to the same periods in the prior year, due to higher revenue levels, favorable absorption of fixed costs, a favorable product mix, and a shift in sales volumes across different geographic regions. Services gross profit increased for the three and six month periods ended June 26, 2026 compared to the same periods in the prior year, primarily due to higher revenue levels. Gross margin remained flat for the six-month period, as cost of revenue grew in line with revenue and offset improved absorption of fixed costs. For the three-month period, gross margin decreased slightly, as cost of revenue growth outpaced revenue growth. - 28 - Table of Contents Operating Margin Three Months Ended Six Months Ended Operating Profit by Segment (Dollars in millions) June 26, 2026 June 27, 2025 Percent Change June 26, 2026 June 27, 2025 Percent Change Products $ 24.8 $ (70.9) (135.0) % $ 31.8 $ (60.7) (152.4) % Services 4.7 (70.9) (106.6) % 9.0 (68.2) (113.2) % Operating profit $ 29.5 $ (141.8) (120.8) % $ 40.8 $ (128.9) (131.7) % Operating Margin by Segment Products 4.3% (15.6%) 3.1% (6.7%) Services 6.5% (111.0%) 6.4% (54.3%) Total Company 4.6% (27.3%) 3.5% (12.4%) Products operating income and operating margin increased for the three and six month periods ended June 26, 2026 compared to the same periods in the prior year, primarily reflecting higher gross profit and the absence of the $77.6 million goodwill impairment charge recorded in the prior period. Services operating income and operating margin increased for the three and six month periods ended June 26, 2026 compared to the same periods in the prior year, primarily reflecting higher gross profit driven by increased revenue, with operating expenses not materially different, and the absence of the $73.5 million goodwill impairment charge recorded in the prior period. Research and Development Three Months Ended Six Months Ended (Dollars in millions) June 26, 2026 June 27, 2025 Percent Change June 26, 2026 June 27, 2025 Percent Change Research and development $ 8.8 $ 7.8 12.8 % $ 17.4 $ 15.4 13.0 % Research and development as a percentage of total revenues 1.4% 1.5% 1.5% 1.5% Research and development expenses consist primarily of activities related to new component testing and evaluation, test equipment and fixture development, product design, the advancement of cleaning and coating and analytical processes, and other product-development activities. Research and development expenses increased for the three and six month periods ended June 26, 2026 compared to the same periods in the prior year, primarily due to higher employee-related compensation costs. Sales and Marketing Three Months Ended Six Months Ended (Dollars in millions) June 26, 2026 June 27, 2025 Percent Change June 26, 2026 June 27, 2025 Percent Change Sales and marketing $ 16.4 $ 15.5 5.8 % $ 31.9 $ 30.5 4.6 % Sales and marketing as a percentage of total revenues 2.5% 3.0% 2.7% 2.9% Sales and marketing expenses consist primarily of salaries and commissions paid to our sales employees, salaries paid to our engineers who partner with sales and service employees to help determine the components and configuration requirements for new products and other costs related to the sales of our products. Sales and marketing expenses increased for the three and six month periods ended June 26, 2026 compared to the same periods in the prior year, primarily due to higher employee-related costs. - 29 - Table of Contents General and Administrative Three Months Ended Six Months Ended (Dollars in millions) June 26, 2026 June 27, 2025 Percent Change June 26, 2026 June 27, 2025 Percent Change General and administrative $ 49.0 $ 46.9 4.5 % $ 98.0 $ 95.4 2.7 % General and administrative as a percentage of total revenues 7.6% 9.0% 8.3% 9.2% General and administrative expenses primarily consist of personnel expenses for executive, finance, legal, and human resources employees, professional fees for external accounting, legal and consulting services, and other corporate overhead costs, including compliance and reporting costs associated with operating as a public company. General and administrative expenses increased for the three and six month periods ended June 26, 2026 compared to the same periods in the prior year, primarily due to higher employee-related costs. Interest and Other Expense, net Three Months Ended Six Months Ended (Dollars in millions) June 26, 2026 June 27, 2025 Percent Change June 26, 2026 June 27, 2025 Percent Change Interest income $ 1.0 $ 0.8 25.0 % $ 2.4 $ 1.9 26.3 % Interest expense $ (1.1) $ (10.1) (89.1) % $ (8.3) $ (20.0) (58.5) % Other income (expense), net $ 0.6 $ (2.2) (127.3) % $ (0.7) $ (1.3) (46.2) % Interest income was relatively consistent for the three and six month periods ended June 26, 2026 compared to the same periods in the prior year. Interest expense decreased for the three and six month periods ended June 26, 2026 compared to the same periods in the prior year, primarily due to lower interest expense following the term loan prepayment, partially offset by higher amortization of debt issuance costs related to the convertible notes. Other income (expense), net improved for the three and six month periods ended June 26, 2026 compared to the same periods in the prior year, primarily due to favorable foreign exchange gains, partially offset by a loss on extinguishment of debt in the current-year six-month period. Provision for Income Taxes Three Months Ended Six Months Ended (Dollars in millions) June 26, 2026 June 27, 2025 Percent Change June 26, 2026 June 27, 2025 Percent Change Provision for income taxes $ 18.1 $ 7.2 151.4 % $ 37.2 $ 14.6 154.8 % Effective tax rate 60.3% -4.7% 108.8% -9.8% The increase in the provision for income taxes for the three and six month periods ended June 26, 2026 compared to the same periods in the prior year is primarily attributable to the impact of a distribution of earnings from, and change in ownership of, one of the Company’s foreign subsidiaries in the current year, changes in the geographic mix of worldwide earnings and financial results in jurisdictions which are taxed at different rates, and the impact of losses in jurisdictions with full valuation allowances on deferred tax assets. The Company recorded a discrete tax expense of $15.1 million in the six months ended June 26, 2026, due to the distribution of earnings from China. The Company recorded a discrete tax expense of $9.6 million in the quarter ended June 26, 2026, due to a change in ownership of one of the Company’s foreign subsidiaries. Management continuously evaluates the need for a valuation allowance on its deferred tax assets and, as of June 26, 2026, concluded that a full valuation allowance on its U.S. federal, state and certain of its foreign deferred tax assets remained appropriate. - 30 - Table of Contents Liquidity and Capital Resources Cash and cash Equivalents The following table summarizes our cash and cash equivalents: (In millions) June 26, 2026 December 26, 2025 Increase Total cash and cash equivalents $ 255.9 $ 311.8 $ (55.9) The following table summarizes the Condensed Consolidated Statements of Cash Flow information: Six Months Ended (In millions) June 26, 2026 June 27, 2025 Operating activities $ (74.4) $ 57.4 Investing activities (25.7) (29.1) Financing activities 48.5 (18.8) Effects of exchange rate changes on cash and cash equivalents (4.3) 4.0 Net increase (decrease) in cash and cash equivalents $ (55.9) $ 13.5 Our primary cash inflows and outflows were as follows: • For the six-month period ended June 26, 2026, cash used in operating activities was $74.4 million, compared to cash provided by operating activities of $57.4 million for the same period in the prior year. The $131.8 million decrease in net cash provided by operating activities was primarily driven by an unfavorable change in net working capital of $145.0 million and an unfavorable change in non-cash items included in net loss of $146.7 million, partially offset by a $159.9 million improvement in net loss. • The major contributors to net changes in operating assets and liabilities for the six-month period ended June 26, 2026 were as follows: ◦ Accounts payable increased by $104.4 million, accrued compensation and related benefits increased by $11.3 million, and other liabilities increased by $13.8 million, primarily reflecting increased production activities and the timing of payments. ◦ Accounts receivable decreased by $0.8 million, primarily due to the timing of shipments and collections. Inventories increased by $238.9 million due to higher production levels. Prepaid and other current assets increased by $13.8 million, primarily due to higher prepaid expenses and deposits. • Net cash used in investing activities during the six-month period ended June 26, 2026 and June 27, 2025 consisted primarily of $25.8 million and $29.2 million purchases of property, plant and equipment, respectively. • Net cash provided by financing activities was $48.5 million for the six-month period ended June 26, 2026, compared to cash used in financing activities of $18.8 million for the same period in the prior year. The increase was primarily driven by $600.0 million of proceeds from the issuance of convertible notes and a $15.0 million drawdown on the revolving credit facility. This was partially offset by principal payments on bank borrowings of $481.5 million, repurchases of common stock of $40.0 million, payments for capped call transactions of $25.1 million, and payments of debt issuance costs of $17.4 million. In the prior year, financing activities primarily reflected lower levels of debt repayments and minimal issuance costs, with no comparable convertible note issuance or share repurchase activity. We believe we have sufficient capital to fund our working capital needs, satisfy our debt obligations, maintain our existing capital equipment, purchase new capital equipment and make strategic acquisitions. As of June 26, 2026, we had cash and cash equivalents of $255.9 million compared to $311.8 million as of December 26, 2025. Our cash and cash equivalents, cash generated from operations, and amounts available under our revolving line of credit described below were our principal sources of liquidity as of June 26, 2026. The Company has entered into a factoring agreement with a financial institution to sell certain accounts receivable on a non-recourse basis. Under this arrangement, the Company sells certain trade receivables and accounts for the transactions as sales of receivables. The financial institution assumes the risk of collection, without recourse to the Company in the event of loss. The Company continues to perform certain collection and administrative functions for the receivables sold. The receivables are derecognized from the condensed consolidated balance sheet upon receipt of cash proceeds. The Company utilizes this arrangement as part of its working capital management. - 31 - Table of Contents During the six months ended June 26, 2026, the Company sold accounts receivable totaling $49.0 million under this arrangement. We anticipate that our existing cash and cash equivalents balance and operating cash flow will be sufficient to service our indebtedness and meet our working capital requirements and technology development projects for at least the next twelve months. The adequacy of these resources to meet our liquidity needs beyond that period will depend on our growth, the size and number of any acquisitions, the state of the worldwide economy, our ability to meet our financial covenants with our credit facility, the cyclical expansion or contraction of the semiconductor capital equipment industry and the other industries we serve and capital expenditures required to meet possible increased demand for our products. In order to expand our business or acquire additional complementary businesses or technologies, we may need to raise additional funds through equity or debt financing. If required, additional financing may not be available on terms that are favorable to us, if at all. If we raise additional funds through the issuance of equity or convertible debt securities, our stockholders’ equity interest will be diluted and these securities might have rights, preferences and privileges senior to those of our current stockholders. We may also require the consent of our new lenders to raise additional funds through equity or debt financing. No assurance can be given that additional financing will be available or that, if available, such financing can be obtained on terms favorable to our stockholders and us. As of June 26, 2026, we have cash of approximately $219.6 million in our foreign subsidiaries. It is not practicable to determine the tax liability that might be incurred if the undistributed earnings of these foreign subsidiaries were to be distributed. It is the Company’s practice and intention to reinvest the earnings of its non-U.S. subsidiaries in those operations, except for certain of its subsidiaries based in Singapore and China. There is no expected Singapore or U.S. tax liability on a distribution of the Singapore earnings. However, the Company has accrued taxes on a portion of the undistributed earnings of the China subsidiary in its financial statements as of June 26, 2026. Borrowing Arrangements The following table summarizes our borrowings: June 26, 2026 (Dollars in millions) Amount Weighted- Average Interest Rate Revolver $ 15.0 5.4 % Convertible Notes 600.0 0.0 % Debt issuance costs (17.5) $ 597.5 The Company’s total gross debt as of June 26, 2026 reflects $600.0 million aggregate principal amount of 0.00% Convertible Notes due 2031 issued in fiscal year 2026 and a $15.0 million revolver drawdown. The Company's term loan facility was retired in full during fiscal year 2026 and carried no outstanding balance as of June 26, 2026. On April 23, 2026, the Company entered into the Tenth Amendment to its Credit Agreement, which increased the aggregate revolving credit commitment from $150.0 million to $250.0 million and extended the maturity date to April 23, 2031. As of June 26, 2026, the Company had $15.0 million of borrowings outstanding under the revolving credit facility, and available borrowing capacity was $230.9 million, net of outstanding letters of credit and borrowings. The Company was in compliance with all financial covenants under the Amended Credit Agreement as of June 26, 2026. The Company also maintains credit facilities in Czechia and Israel, which provide for revolving credit capacity of up to 7.0 million euros (approximately $8.0 million) and $5.0 million, respectively. As of June 26, 2026, there were no borrowings outstanding under either facility; however, $2.1 million of the Czechia facility was utilized for outstanding bank guarantees. As of June 26, 2026, the Company had $230.9 million, $5.9 million and $5.0 million available to draw from its credit facilities in the U.S., Czechia, and Israel, respectively. See Note 5 - Long-Term Debt, of our Condensed Consolidated Financial Statements, included in Part 1 of this Form-10Q for additional information. - 32 - Table of Contents Capital Expenditures Capital expenditures were $25.8 million during the six months ended June 26, 2026 and were primarily attributable to the capital invested in our manufacturing and service facilities worldwide. Our anticipated capital expenditures for the remainder of 2026 are expected to be financed primarily from our cash flow generated from operations and cash on hand. Contractual Obligations The Company had commitments to various third parties to purchase inventories totaling approximately $971.1 million as of June 26, 2026. In conjunction with the sale of our products in the ordinary course of business, we provide standard indemnification against certain liabilities to our customers, which may include claims of losses by their own customers resulting out of property damages, bodily injuries or deaths, or infringement of intellectual property rights by our products. Our potential liability arising out of intellectual property infringement claims by any third party is generally uncapped. As of June 26, 2026, we have not incurred any significant costs to defend lawsuits or settle claims related to these indemnification arrangements. As a result, we believe the estimated fair value of these arrangements is minimal. - 33 - Table of Contents