ICHOR HOLDINGS, LTD. Cautionary Statement Concerning Forward-Looking Statements
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, as amended. You should not
place undue reliance on these statements. All statements other than statements
of historical fact included in this report are forward-looking statements. These
statements relate to analyses and other information, which are based on
forecasts of future results and estimates of amounts not yet determinable. These
statements also relate to our future prospects, developments and business
strategies. These forward-looking statements are identified by the use of terms
and phrases such as "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "plan," "predict," "project," "will" and similar terms and
phrases, including references to assumptions. However, these words are not the
exclusive means of identifying such statements. These statements are contained
in many sections of this report, including those in Part I - Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations. Although we believe that our plans, intentions and expectations
reflected in or suggested by such forward-looking statements are reasonable, we
cannot assure you that we will achieve those plans, intentions or expectations.
All forward-looking statements are subject to risks and uncertainties that may
cause actual results to differ materially from those that we expected. Important
factors that could cause actual results to differ materially from our
expectations, or cautionary statements, include our dependence on expenditures
by manufacturers in the semiconductor capital equipment industry; our reliance
on a very small number of original equipment manufacturer customers for a
significant portion of our sales; our customers' significant negotiating
leverage; competition in our industry; risks associated with weakness in the
global economy and geopolitical instability, including the war in
We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated unaudited financial statements and related notes included elsewhere in this report.
Overview
We are a leader in the design, engineering, and manufacturing of critical fluid delivery subsystems and components for semiconductor capital equipment. Our product offerings include gas and chemical delivery systems and subsystems, collectively known as fluid delivery systems and subsystems, which are key elements of the process tools used in the manufacturing of semiconductor devices. Our gas delivery subsystems deliver, monitor, and control precise quantities of the specialized gases used in semiconductor manufacturing processes such as etch and deposition. Our chemical delivery systems and subsystems precisely blend and dispense the reactive liquid chemistries used in semiconductor manufacturing processes such as chemical-mechanical planarization, electroplating, and cleaning. We also provide precision-machined components, weldments, ebeam and laser-welded components, precision vacuum and hydrogen brazing and surface treatment technologies, and other proprietary products. This vertically integrated portion of our business is primarily focused on metal and plastic parts that are used in gas and chemical systems, respectively.
Fluid delivery subsystems ensure accurate measurement and uniform delivery of specialty gases and chemicals at critical steps in the semiconductor manufacturing processes. Any malfunction or material degradation in fluid delivery reduces yields and increases the likelihood of manufacturing defects in these processes. Most OEMs outsource all or a portion of the design, engineering, and manufacturing of their gas delivery subsystems to a few specialized suppliers, including us. Additionally, many OEMs are outsourcing the design, engineering, and manufacturing of their chemical delivery subsystems due to the increased fluid expertise required to manufacture these subsystems. Outsourcing these subsystems has allowed OEMs to leverage the suppliers' highly specialized engineering, design, and production skills while focusing their internal resources on their own value-added processes. We believe that this outsourcing trend has enabled OEMs to reduce their costs and development time, as well as provide growth opportunities for specialized subsystems suppliers like us.
We have a global footprint with production facilities in
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The following table summarizes key financial information for the periods indicated. Amounts are presented in accordance with GAAP unless explicitly identified as being a non-GAAP metric. For a description of our non-GAAP metrics and reconciliations to the most comparable GAAP metrics, please refer to Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Results within this report.
Three Months Ended
April 1, March 26,
2022 2021
(dollars in thousands, except per share amounts)
Net sales $ 293,146 $ 264,566
Gross profit $ 43,932 $ 39,512
Gross margin 15.0 % 14.9 %
Non-GAAP gross margin 16.0 % 16.1 %
Operating expenses $ 33,467 $ 21,255
Operating income $ 10,465 $ 18,257
Net income $ 8,039 $ 14,638
Non-GAAP net income $ 20,178 $ 21,725
Diluted EPS $ 0.28 $ 0.51
Non-GAAP diluted EPS $ 0.70 $ 0.76
COVID-19 Pandemic and Market Conditions Update
The COVID19 pandemic and associated macroeconomic impacts, including supply chain disruptions, tightened labor markets, and overall increased inflation have created, and are expected to continue to create significant volatility, uncertainty, and turmoil in our industry. While our facilities are currently not subject to any site-wide government shutdowns, and restrictions have eased around social, business, travel, and governmental activities, we have experienced increases in direct costs and inefficiencies within our factories associated with logistics, employee labor, and certain component shortages. These factors have resulted in, and may continue to result in, lower revenues and operating margins. The extent and duration of these impacts cannot be specifically quantified given the dynamic nature and breadth of the pandemic's impact on our operations and that of our customers and suppliers.
Results of Operations
The following table sets forth our unaudited results of operations for the periods presented. The periodtoperiod comparison of results is not necessarily indicative of results for future periods.
Three Months Ended
April 1, March 26,
2022 2021
(in thousands)
Net sales $ 293,146 $ 264,566
Cost of sales 249,214 225,054
Gross profit 43,932 39,512
Operating expenses:
Research and development 4,851 3,515
Selling, general, and administrative 23,267 14,349
Amortization of intangible assets 5,349 3,391
Total operating expenses 33,467 21,255
Operating income 10,465 18,257
Interest expense, net 1,532 1,919
Other expense, net 84 185
Income before income taxes 8,849 16,153
Income tax expense 810 1,515
Net income $ 8,039 $ 14,638
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The following table sets forth our unaudited results of operations as a percentage of our total sales for the periods presented.
Three Months Ended
April 1, March 26,
2022 2021
Net sales 100.0 100.0
Cost of sales 85.0 85.1
Gross profit 15.0 14.9
Operating expenses:
Research and development 1.7 1.3
Selling, general, and administrative 7.9 5.4
Amortization of intangible assets 1.8 1.3
Total operating expenses 11.4 8.0
Operating income 3.6 6.9
Interest expense, net 0.5 0.7
Other expense, net 0.0 0.1
Income before income taxes 3.0 6.1
Income tax expense 0.3 0.6
Net income 2.7 5.5
Comparison of the three months ended
Three Months Ended Change
April 1, March 26,
2022 2021 Amount %
(dollars in thousands)
Net sales $ 293,146 $ 264,566 $ 28,580 10.8 %
The increase in net sales from the first quarter of 2021 to the first quarter of
2022 was primarily due to strong demand from our customers as a result of
continued growth in the global wafer fabrication equipment market as well as
incremental revenues from our acquisition of
Net sales to
Net sales to international customers increased by
Cost of Sales, Gross Profit, and Gross Margin
Three Months Ended Change
April 1, March 26,
2022 2021 Amount %
(dollars in thousands)
Cost of sales $ 249,214 $ 225,054 $ 24,160 10.7 %
Gross profit $ 43,932 $ 39,512 $ 4,420 11.2 %
Gross margin 15.0 % 14.9 % + 10 bps
The increase in the gross amounts of cost of sales and gross profit from the
first quarter of 2021 to the first quarter of 2022 were primarily due to the
factors mentioned in the commentary above under the heading, "
The increase in our gross margin from the first quarter of 2021 to the first
quarter of 2022 was primarily due to accretive margins from our recent
acquisition of IMG in
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Research and Development
Three Months Ended Change
April 1, March 26,
2022 2021 Amount %
(dollars in thousands)
Research and development $ 4,851 $ 3,515 $ 1,336 38.0 %
The increase in research and development expenses from the first quarter of 2021 to the first quarter of 2022 was primarily due to increased employee-related expense, as we expand our engineering team to design and engineer next generation, high performance solutions for our customers.
Selling, General, and Administrative
Three Months Ended Change
April 1, March 26,
2022 2021 Amount %
(dollars in thousands)
Selling, general, and administrative
The increase in selling, general, and administrative expense from the first
quarter of 2021 to the first quarter of 2022 was primarily due to a
non-recurring loss accrual of
Amortization of Intangible Assets
Three Months Ended Change
April 1, March 26,
2022 2021 Amount %
(dollars in thousands)
Amortization of intangibles assets
The increase in amortization expense from the first quarter of 2021 to the first
quarter of 2022 was primarily due to incremental amortization expense from
intangible assets acquired in connection with our acquisition of IMG in
Interest Expense, Net
Three Months Ended Change
April 1, March 26,
2022 2021 Amount %
(dollars in thousands)
Interest expense, net $ 1,532 $ 1,919 $ (387 ) -20.2 %
The decrease in interest expense, net from the first quarter of 2021 to the
first quarter of 2022 was primarily due to a 147basis point decrease in our
weighted average interest rate, from 3.30 % to 1.83%, respectively, and a
decrease in debt issuance cost amortization expense, partially offset by a
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Other Expense, Net
Three Months Ended Change
April 1, March 26,
2022 2021 Amount %
(dollars in thousands)
Other expense, net $ 84 $ 185 $ (101 ) -54.6 %
The change in other expense, net from the first quarter of 2021 to the first quarter of 2022 was primarily due to currency exchange rate fluctuations during the quarter as a result of transactions denominated in the local currencies of our foreign operations.
Income Tax Expense
Three Months Ended Change
April 1, March 26,
2022 2021 Amount %
(dollars in thousands)
Income tax expense $ 810 $ 1,515 $ (705 ) -46.5 %
The decrease in income tax expense from the first quarter of 2021 to the first
quarter of 2022 was primarily due to decreased taxable income in the
NonGAAP Financial Results
Management uses non-GAAP metrics to evaluate our operating and financial results. We believe the presentation of non-GAAP results is useful to investors for analyzing business trends and comparing performance to prior periods, along with enhancing investors' ability to view our results from management's perspective. Non-GAAP gross margin is defined as non-GAAP gross profit divided by net sales. Non-GAAP gross profit and non-GAAP net income are defined as: gross profit or net income excluding, as applicable, (1) amortization of intangible assets, share-based compensation expense, and non-recurring expenses, including settlement losses, facility shutdown costs, and acquisition-related costs and charges, to the extent they are present in gross profit or net income; and (2) the tax impacts associated with our non-GAAP adjustments, as well as non-recurring discrete tax items. Non-GAAP diluted earnings per share ("EPS") is defined as non-GAAP net income divided by weighted average diluted ordinary shares outstanding during the period.
Non-GAAP results have limitations as an analytical tool, and you should not consider them in isolation or as a substitute for our results reported under GAAP. Other companies may calculate non-GAAP results differently or may use other measures to evaluate their performance, both of which could reduce the usefulness of our non-GAAP results as a tool for comparison.
Because of these limitations, you should consider non-GAAP results alongside other financial performance measures and results presented in accordance with GAAP. In addition, in evaluating non-GAAP results, you should be aware that in the future we will incur expenses such as those that are the subject of adjustments in deriving non-GAAP results and you should not infer from our presentation of non-GAAP results that our future results will not be affected by these expenses or any unusual or non-recurring items.
The following table presents our unaudited nonGAAP gross profit and non-GAAP gross margin and a reconciliation from gross profit, the most comparable GAAP measure, for the periods indicated:
Three Months Ended
April 1, March 26,
2022 2021
U.S. GAAP gross profit $ 43,932 $ 39,512
Non-GAAP adjustments:
Share-based compensation 551 306
Facility shutdown costs (1) - 2,399
Fair value adjustment to inventory from acquisitions (2) 2,492 211
Other non-recurring expense, net (3) - 106
Non-GAAP gross profit $ 46,975 $ 42,534
U.S. GAAP gross margin 15.0 % 14.9 %
Non-GAAP gross margin 16.0 % 16.1 %
(1) During the second quarter of 2020, we announced the closure of our
manufacturing facility in Union City, California , which we completed in
2021. We incurred write-off costs associated with inventories determined to
be obsolete and severance costs associated with affected employees in
connection with the closure.
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(2) As part of the purchase price allocations of our acquisitions of IMG in
November 2021 and a precision machining operation in Mexico in
December 2020 , we recorded acquired-inventories at fair value, resulting in
a fair value step-up of $3.9 million and $0.2 million , respectively. These
amounts were subsequently released to cost of sales as acquired-inventories
were sold.
(3) Included in this amount for the first quarter of 2021 is primarily a
non-recurring settlement charge.
The following table presents our unaudited nonGAAP net income and non-GAAP diluted EPS and a reconciliation from net income, the most comparable GAAP measure, for the periods indicated:
Three Months Ended
April 1, March 26,
2022 2021
(dollars in thousands, except per
share amounts)
U.S. GAAP net income $ 8,039 $ 14,638
Non-GAAP adjustments:
Amortization of intangible assets 5,349 3,391
Share-based compensation 2,897 2,415
Facility shutdown costs (1) - 2,510
Settlement loss (2) 3,100 -
Fair value adjustment to inventory from acquisitions (3) 2,492 211
Acquisition costs (4) 275 -
Other non-recurring expense, net (5) - 278
Tax adjustments related to non-GAAP adjustments (6) (1,974 ) (1,718 )
Non-GAAP net income $ 20,178 $ 21,725
U.S. GAAP diluted EPS $ 0.28 $ 0.51
Non-GAAP diluted EPS $ 0.70 $ 0.76
Shares used to compute diluted EPS 29,023,455 28,729,112
(1) During the second quarter of 2020, we announced the closure of our
manufacturing facility in Union City, California , which we completed in
2021. We incurred write-off costs associated with inventories determined to
be obsolete and severance costs associated with affected employees in
connection with the closure.
(2) During the first quarter of 2022, we recorded a non-recurring loss accrual
of $3.1 million relating to an expected settlement of an employment-related
legal matter. We expect the settlement to be finalized and paid within the
next 12 months.
(3) As part of the purchase price allocations of our acquisitions of IMG in
November 2021 and a precision machining operation in Mexico in
December 2020 , we recorded acquired-inventories at fair value, resulting in
a fair value step-up of $3.9 million and $0.2 million , respectively. These
amounts were subsequently released to cost of sales as acquired-inventories
were sold.
(4) Included in this amount are incremental transaction-related costs incurred
in connection with our acquisition of IMG in November 2021 .
(5) Included in this amount for the first quarter of 2021 are primarily
(i) non-capitalized costs incurred in connection with our implementation of
a new ERP system and a Sarbanes-Oxley compliance program and (ii) a
non-recurring settlement charge.
(6) Adjusts U.S. GAAP income tax expense (benefit) for impact of our non-GAAP
adjustments, as defined, including the impacts of excluding share-based
compensation, amortization of intangible assets, and other non-recurring
expenses. This adjustment also excludes the impact of non-recurring
discrete tax items.
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Liquidity and Capital Resources
The following section discusses our liquidity and capital resources, including our primary sources of liquidity and our material cash requirements. Our cash and cash equivalents are maintained in highly liquid and accessible accounts with no significant restrictions.
Material Cash Requirements
Our primary liquidity requirements arise from: (i) working capital requirements, including procurement of raw materials inventory for use in our factories and employee-related costs, (ii) business acquisitions, (iii) interest and principal payments under our credit facilities, (iv) research and development investments and capital expenditures, and (v) payment of income taxes. We have no significant long-term purchase commitments related to procuring raw materials inventory. Our ability to fund these requirements will depend, in part, on our future cash flows, which are determined by our future operating performance and are therefore subject to prevailing global macroeconomic conditions and financial, business, and other factors, some of which are beyond our control.
We believe that our cash and cash equivalents, the amounts available under our credit facilities, and our operating cash flow will be sufficient to fund our business and our current obligations for at least the next 12 months and beyond.
Sources and Conditions of Liquidity
Our ongoing sources of liquidity to fund our material cash requirements are primarily derived from: (i) sales to our customers and the related changes in our net operating assets and liabilities and (ii) proceeds from our credit facilities and equity offerings, when applicable.
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