Ultra Clean Holdings Inc

REPORT OF INDEPENDENT REGIST ERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Ultra Clean Holdings, Inc. (the “Company”) as of December 29, 2023 and December 30, 2022, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years ended December 29, 2023, December 30, 2022 and December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 29, 2023, based on criteria established in Internal Control - Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 29, 2023 and December 30, 2022, and the consolidated results of its operations and its cash flows for each of the three years ended December 29, 2023, December 30, 2022 and December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, because of the effect of the material weaknesses identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 29, 2023, based on criteria established in Internal Control - Integrated Framework (2013)issued by COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting included in Item 9A. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Management’s Report on Internal Control Over Financial Reporting, on October 25, 2023, the Company acquired HIS Innovations Group. For the purposes of assessing internal control over financial reporting, management excluded HIS Innovations Group, whose financial statements constitute 3.3% of the Company’s consolidated total assets (excluding $66.4 million of goodwill and intangible assets, which were integrated into the Company’s control environment) and 0.4% of consolidated revenues as of and for the year ended December 29, 2023. Accordingly, our audit did not include the internal control over financial reporting of HIS Innovations Group.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment in Item 9A:

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The Company did not fully maintain components of the COSO framework, including elements of the control environment, risk assessment, control activities, and monitoring activities components, relating to: (i) sufficiency of processes related to identifying and analyzing risks to the achievement of objectives across the entity, (ii) sufficiency of competent personnel to analyze risk and develop internal control activities to support the achievement of the Company’s internal control objectives; and (iii) performing control activities in accordance with established policies in a timely manner.

The entity level material weaknesses contributed to other material weaknesses within the Company’s system of internal control over financial reporting:

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For certain of the Company’s subsidiaries in the Products segment, the Company did not design and maintain effective information technology (IT) general controls for certain information systems that are relevant to the preparation of its consolidated financial statements. Specifically, the Company did not design and maintain (a) program change management controls to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately and (b) user access controls to ensure appropriate segregation of duties that adequately restrict user and privileged access to its financial applications and data to appropriate company personnel. As a result, IT application controls and business process controls that are dependent on the IT general controls, or that rely on data produced from systems impacted by the ineffective IT general controls, are also deemed ineffective, which affects substantially all financial statement account balances and disclosures within the certain subsidiaries.

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For certain of the Company’s operating subsidiaries in the Company’s Products segment, the Company did not design and maintain effective controls, such that, certain company personnel have incompatible duties which allow for the creation, review and processing of certain financial data without independent review and authorization, which affects substantially all financial statement account balances and disclosures within such subsidiaries.

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The Company did not design and maintain effective controls to determine the valuation of inventories, including the write down of inventory to its estimated market value less costs to sell and the validation and approval of inventory costing.

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The Company did not design effective controls necessary to validate the accuracy of data used within the operation of controls across substantially all financial statement account balances and disclosures.

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The Company did not design and maintain effective review controls to evaluate the reasonableness of the inputs and assumptions utilized to develop the projected financial information used in the valuation of acquired intangible assets and contingent earn-out liabilities resulting from the business combination.

We considered the material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the Company’s consolidated financial statements as of and for the year ended December 29, 2023, and our opinion on such consolidated financial statements was not affected.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Inventories

As described in Notes 1 and 4 to the consolidated financial statements, the Company’s consolidated inventories balance was $374.5 million as of December 29, 2023. The Company values its inventories at the lower of cost (first-in, first-out) or net realizable value. Obsolete inventory or inventory in excess of management’s estimated usage is written down to its estimated market value less costs to sell, if less than its cost. Inherent in the estimates of market value are management’s estimates related to economic trends and future demand for the Company’s products. As disclosed by management, if these factors are less favorable than those projected, additional inventory write-downs may be required.

The valuation of inventories, specific to write downs, requires management to make significant assumptions and especially complex judgments about the future salability of the inventory and its net realizable value. These assumptions include the assessment of net realizable value by inventory category considering economic trends, future usage and market demand for their products. Additionally, management makes qualitative judgments related to slow moving and obsolete inventories. Given the significant judgments made by management, auditing the reasonableness of management’s estimates and assumptions involved significant audit effort and required especially challenging and subjective auditor judgment when performing audit procedures and evaluating the results of those procedures. Additionally, as described above a material weakness was identified related to this matter.

Taking into account our risk assessment for each of the various locations and components, the most relevant procedures we performed to address this critical audit matter included:

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Evaluating the Company’s process used in developing the estimate for excess and obsolete inventory by:

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Evaluating the methodology used by management to develop its estimate for reasonableness;

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Testing the completeness, accuracy, and relevance of the underlying data used by management to develop the estimate;

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Evaluating the reasonableness of specified inputs supporting management's estimate, including the age of inventory items, historic inventory trends, and where applicable historic write-off activity;

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Performing inquiries with appropriate financial personnel, regarding obsolete or discontinued inventory models, cancelled sales orders and other factors to corroborate management’s assertions regarding qualitative judgments about slow moving and obsolete inventories; and

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Testing the mathematical accuracy of the calculations related to the application of the Company’s methodology to specific inventory categories.

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Performing substantive analytical procedures to assess the reasonableness of management’s determination of the excess and obsolescence of inventories of certain subsidiaries.

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Developing an independent expectation of the excess and obsolescence of inventories of certain subsidiaries based on sell-through information and comparing it to management’s estimate.

Valuation of Contingent Consideration and Acquired Intangible Assets

As described in Note 2 to the consolidated financial statements, on October 25, 2023, the Company acquired 100% of the shares of HIS Innovations Group (“HIS”) for total consideration of $73.6 million, which includes initial cash consideration of $46.5 million and the Company’s estimated fair value of contingent consideration of $27.1 million. The Company accounted for the acquisition under the acquisition method of accounting for business combinations. The contingent consideration represents up to $70.0 million of cash consideration that may be payable based on the financial performance of the acquired business during the fiscal years 2023, 2024, and 2025. The Company recorded the assets acquired and liabilities assumed at their respective fair values, including intangible assets of $35.2 million in customer relationships, $11.2 million in IP knowhow, $4.6 million in developed technology and $0.6 million in backlog.

Management estimated the fair value of the contingent consideration using a Monte Carlo simulation where profit projections are iterated using random variables and assuming a normal distribution of results. Management estimated the fair value of the acquired intangible assets using discounted cash flow analyses. These fair value estimates were based on the Company’s best estimate of projected financial information, including projected revenue, earnings and cash flows after considering such factors as general market conditions, anticipated customer demand, changes in working capital, long term business plans and recent operating performance. Determining the fair value of the contingent consideration and the acquired intangible assets required management to use significant judgment and estimates, and the significant assumptions used included revenue and its growth rate, cost of revenue and operating expenses attributable to the asset and the discount rate.

The principal considerations for our determination that performing procedures relating to the valuation of the contingent consideration and acquired intangible assets relating to the acquisition of HIS is a critical audit matter are (i) the significant judgment by management when determining the significant assumptions used in projecting future financial performance of the acquired business; (ii) especially challenging and subjective auditor judgment involved when performing procedures and evaluating management’s significant assumptions related to revenue and its growth rate, cost of revenue and operating expenses attributable to the asset, and the discount rate; and (iii) involving the use of professionals with specialized skill and knowledge. Additionally, as described above a material weakness was identified related to this matter.

These primary procedures we performed to address this critical audit matter included:

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Reading the purchase agreement.

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Testing management’s process for determining the fair value of the contingent consideration intangible assets.

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Evaluating the appropriateness of the valuation method used, i.e. multi-period excess earnings and relief from royalty methods for intangible assets, Monte Carlo simulation for contingent consideration.

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Testing the completeness and accuracy of the underlying data used in the valuation models.

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Evaluating the reasonableness of the significant assumptions used by management related to revenue and its growth rate, cost of revenue and operating expenses attributable to the asset and the discount rate considering:

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the current and past performance of the HIS business; and

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whether these significant assumptions were consistent with evidence obtained in other areas of the audit.

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Utilizing professionals with specialized skill and knowledge to assist in evaluating the appropriateness of the valuation model used and the reasonableness of the discount rate significant assumption.

/s/ Moss Adams LLP

San Francisco, California

March 6, 2024

We have served as the Company’s auditor since 2015.