UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 27, 2024 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __ to __ Commission File Number: 001-37961 _______________________________________________________________________________________________________________ ...

Company Performance - Ichor Holdings reported quarterly earnings of $0.12 per share, exceeding the Zacks Consensus Estimate of $0.11 per share, and up from $0.07 per share a year ago, representing an earnings surprise of 9.09% [1] - The company posted revenues of $211.14 million for the quarter ended September 2024, surpassing the Zacks Consensus Estimate by 3.98%, compared to year-ago revenues of $196.76 million [2] - Over the last four quarters, Ichor Holdings has surpassed consensus EPS estimates two times and topped consensus revenue estimates four times [2] Market Performance - Ichor Holdings shares have declined approximately 18.7% since the beginning of the year, while the S&P 500 has gained 20.1% [3] - The current Zacks Rank for Ichor Holdings is 3 (Hold), indicating that the shares are expected to perform in line with the market in the near future [6] Future Outlook - The current consensus EPS estimate for the upcoming quarter is $0.19 on revenues of $216.8 million, and for the current fiscal year, it is $0.28 on revenues of $824.78 million [7] - The outlook for the Electronics - Semiconductors industry, where Ichor Holdings operates, is currently in the bottom 41% of over 250 Zacks industries, which may impact stock performance [8]

Shares of Ichor Holdings Ltd (ICHR, Financial) surged 3.75% in mid-day trading on Oct 2. The stock reached an intraday high of $31.49, before settling at $31.28, up from its previous close of $30.15. This places ICHR 32.63% below its 52-week high of $46.43 and 40.52% above its 52-week low of $22.26. Trading volume was 26,842 shares, 8.7% of the average daily volume of 307,734. Wall Street Analysts Forecast Based on the one-year price targets offered by 7 analysts, the average target price for Ichor Holdings ...

Company Performance - Ichor Holdings reported quarterly earnings of $0.05 per share, exceeding the Zacks Consensus Estimate of $0.03 per share, and up from $0.02 per share a year ago, representing an earnings surprise of 66.67% [1] - The company posted revenues of $203.23 million for the quarter ended June 2024, surpassing the Zacks Consensus Estimate by 2.77%, compared to year-ago revenues of $185.01 million [2] - Over the last four quarters, Ichor Holdings has surpassed consensus revenue estimates four times, but has only beaten EPS estimates once [2] Stock Performance - Ichor Holdings shares have declined approximately 16.2% since the beginning of the year, while the S&P 500 has gained 8.7% [3] - The current Zacks Rank for Ichor Holdings is 3 (Hold), indicating that the shares are expected to perform in line with the market in the near future [6] Future Outlook - The current consensus EPS estimate for the upcoming quarter is $0.12 on revenues of $202.85 million, and for the current fiscal year, it is $0.28 on revenues of $816.03 million [7] - The outlook for the Electronics - Semiconductors industry, where Ichor Holdings operates, is currently in the bottom 40% of over 250 Zacks industries, which may impact stock performance [8] Industry Context - Broadcom Inc., another company in the same industry, is expected to report quarterly earnings of $1.20 per share, reflecting a year-over-year change of +14.3%, with revenues anticipated to be $12.9 billion, up 45.4% from the year-ago quarter [9][10]

Financial Performance - Revenue for Q2 2024 was $203.2 million, an increase from $201.4 million in Q1 2024 and $185.0 million in Q2 2023[2]. - Net loss for Q2 2024 was $5.1 million, improving from a net loss of $9.0 million in Q1 2024 and $20.7 million in Q2 2023[2][4]. - Non-GAAP net income was $1.8 million with a non-GAAP diluted EPS of $0.05, compared to a loss of $2.7 million and an EPS of $(0.09) in Q1 2024[5]. - Operating loss for the quarter was $(2.262) million, an improvement from $(3.741) million in the previous quarter[17]. - The company reported a net loss of $(5.112) million for the quarter, compared to a net loss of $(20.656) million in the same quarter last year, showing a significant reduction of 75.3%[17]. - Ichor Holdings reported a net loss of $5,112 thousand for the three months ended June 28, 2024, an improvement from a net loss of $8,989 thousand in the previous quarter[19]. - Ichor Holdings' diluted EPS for the three months ended June 28, 2024, was $(0.15), while the non-GAAP diluted EPS was $0.05[25]. Cash Flow and Liquidity - Free cash flow for Q2 2024 was $15 million, supported by net cash provided by operating activities of $17.5 million[1][7]. - Cash and cash equivalents at the end of Q2 2024 were $114.3 million, an increase of $12.2 million from the prior quarter[7]. - Cash at the end of the period was $114,349 thousand, an increase from $102,124 thousand at the end of the previous quarter[19]. - For the three months ended June 28, 2024, net cash provided by operating activities was $17,492 thousand, with capital expenditures of $2,847 thousand[28]. - For the six months ended June 28, 2024, net cash provided by operating activities was $22,296 thousand, with capital expenditures of $7,337 thousand[28]. Inventory and Assets - The company reported a decrease in inventories of $9.2 million and accounts receivable of $8.2 million during Q2 2024[7]. - Total current assets were $418.636 million, slightly down from $421.221 million in the previous quarter[14]. - Cash and cash equivalents increased to $114.349 million as of June 28, 2024, up from $79.955 million at the end of December 29, 2023[14]. - Total liabilities decreased to $252.813 million from $260.156 million in the previous quarter, reflecting a reduction of 2.6%[15]. - The company maintained goodwill at $335.402 million, unchanged from the previous reporting periods[14]. - Total shareholders' equity was $694.876 million, a slight decrease from $697.232 million in the previous quarter[14]. Margins and Profitability - Gross margin was 12.6% on a GAAP basis and 13.0% on a non-GAAP basis, compared to 11.4% and 13.9% respectively in the previous year[2][4]. - Gross profit for the quarter was $25.557 million, compared to $25.742 million in the previous year, indicating a slight decrease of 0.7%[17]. - U.S. GAAP gross profit for the three months ended June 28, 2024, was $25,557 thousand, representing a gross margin of 12.6%, up from 11.4% in the previous quarter[20]. - Non-GAAP gross profit for the same period was $26,434 thousand, with a non-GAAP gross margin of 13.0%[20]. - Ichor Holdings' U.S. GAAP operating loss for the three months ended June 28, 2024, was $(2,262) thousand, while the non-GAAP operating income was $4,495 thousand[22]. Future Outlook - The company expects Q3 2024 revenue to be in the range of $195 million to $210 million, with GAAP diluted EPS projected between $(0.17) and $(0.06)[6]. - The company is seeing signs of recovery in customer demand for wafer fab processing equipment, anticipating a stronger second half of 2024[1]. - New proprietary product introductions and customer qualifications are underway, contributing to positive momentum[1]. Research and Development - Research and development expenses for the quarter were $5.926 million, up from $5.188 million in the same quarter last year, indicating an increase of 14.2%[17]. Tax and Valuation - A valuation allowance of $11.1 million was recorded against U.S. federal and state deferred tax assets during the second quarter of 2023[26]. - The company recorded a tax expense on a GAAP and non-GAAP basis reflecting the valuation allowance from the first quarter of 2024 onward[26]. - The valuation allowance against U.S. deferred tax assets reflects an assessment of both positive and negative evidence[26]. - The company projected being in a three-year cumulative loss position in the U.S. by the end of 2023, impacting future taxable income assessments[26]. - The company incurred $0.5 million in severance costs related to global reduction-in-force programs for the three and six months ended June 28, 2024[26].

Financial Performance - Net sales for the three months ended March 29, 2024, were $201,383 thousand, a decrease of 10.8% from $225,870 thousand in the same period of 2023[61][69]. - Gross margin decreased to 11.4% in Q1 2024 from 14.7% in Q1 2023, primarily due to reduced factory utilization and unfavorable product mix[61][71]. - The company reported a net loss of $8,989 thousand for Q1 2024, compared to a net loss of $5 thousand in Q1 2023[61][66]. - Operating margin for Q1 2024 was (1.9)%, down from 2.1% in Q1 2023, reflecting the impact of reduced sales and increased costs[61][68]. - Non-GAAP gross profit decreased from $34,948 thousand in Q1 2023 to $24,518 thousand in Q1 2024, while non-GAAP gross margin decreased from 15.5% to 12.2%[82]. - Non-GAAP operating income decreased from $13,721 thousand in Q1 2023 to $2,432 thousand in Q1 2024, with non-GAAP operating margin declining from 6.1% to 1.2%[83]. - Non-GAAP net loss increased from $11,128 thousand in Q1 2023 to $2,712 thousand in Q1 2024, with non-GAAP diluted EPS decreasing from $0.38 to $(0.09)[86]. Expenses and Costs - Research and development expenses increased by 24.5% to $5,370 thousand in Q1 2024, driven by higher employee-related expenses and costs related to new product development[61][72]. - Cost of sales decreased by 7.4% to $178,389 thousand in Q1 2024, compared to $192,630 thousand in Q1 2023[61][70]. - Selling, general, and administrative expenses decreased by 4.7% to $19,219 thousand in Q1 2024, mainly due to reduced employee-related expenses[61][73]. - Amortization of intangible assets decreased by $1,820 thousand, or 45.9%, from $3,966 thousand in Q1 2023 to $2,146 thousand in Q1 2024 due to certain intangible assets becoming fully amortized[74]. - Net interest expense decreased by $454 thousand, or 10.0%, from $4,550 thousand in Q1 2023 to $4,096 thousand in Q1 2024, primarily due to a decrease in weighted average borrowings outstanding by $58,544 thousand, or 19.4%[76]. - Other expense, net decreased by $545 thousand, or 69.5%, from $784 thousand in Q1 2023 to $239 thousand in Q1 2024, primarily due to currency exchange rate fluctuations[77]. - Income tax expense increased by $1,448 thousand, from a benefit of $535 thousand in Q1 2023 to an expense of $913 thousand in Q1 2024, due to increased taxable income in foreign jurisdictions[78]. Cash Flow and Liquidity - Cash and cash equivalents increased by $22.2 million from the prior year, totaling $102.1 million as of March 29, 2024, primarily due to net proceeds of $136.7 million from a public offering[93]. - Cash provided by operating activities was $4.8 million in Q1 2024, compared to cash used of $10.9 million in Q1 2023, reflecting favorable changes in accounts payable and accrued liabilities[95]. - The company has $250.0 million available to draw on its revolving credit facility as of March 29, 2024, supporting its liquidity needs[92]. - Cash provided by financing activities included net proceeds of $136.7 million from the issuance of 3.8 million ordinary shares in March 2024, offset by net payments on credit facilities of $116.9 million[99]. - Total indebtedness as of March 29, 2024, was $133.1 million, with $7.5 million due within 12 months, and no material risks anticipated from changes in interest rates[104]. - A hypothetical 100 basis point change in the interest rate on outstanding debt would have resulted in a $0.3 million change to interest expense during the quarter, or $1.3 million on an annualized basis[104]. Market Conditions and Future Outlook - The semiconductor industry is experiencing a cyclical downturn, impacting customer demand and spending on capital equipment[62][63]. - The company initiated labor and cost reduction initiatives starting in Q4 2022, incurring severance charges of $0.9 million in Q1 2024[62]. - Future growth is anticipated as demand for semiconductors and capital equipment is expected to return, driven by the need for increased semiconductor production capacity[63]. Foreign Currency and Risk Management - Foreign currency exchange risks are mitigated as substantially all sales arrangements are priced in U.S. dollars, reducing exposure to material exchange rate fluctuations[102]. - Operating expenses may be subject to fluctuations due to foreign currency exchange rates, particularly in currencies such as the Singapore dollar and euro, but transaction gains and losses have not been material[103]. - The company has not engaged in foreign currency hedging transactions to date[103]. Accounting Policies and Estimates - Critical accounting estimates and assumptions are evaluated on an ongoing basis, with actual results potentially differing from estimates impacting future financial statements[100]. - Significant accounting policies impacting consolidated financial statements are detailed in the 2023 Annual Report on Form 10-K[101].

Ichor Holdings (ICHR) came out with a quarterly loss of $0.09 per share versus the Zacks Consensus Estimate of $0.01. This compares to earnings of $0.38 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of -1,000%. A quarter ago, it was expected that this company would post earnings of $0.07 per share when it actually produced a loss of $0.06, delivering a surprise of -185.71%.Over the last four quarters, the company has surpassed ...

Financial Performance - Q1 2024 revenue was $201.4 million, a decrease of 1.1% from Q4 2023 ($203.5 million) and a decrease of 10.8% from Q1 2023 ($225.9 million) [2] - Q1 2024 GAAP gross margin was 11.4%, up from 10.0% in Q4 2023 but down from 14.7% in Q1 2023 [1] - Q1 2024 net loss was $9.0 million, an improvement from a net loss of $11.9 million in Q4 2023 and a net income of $0.0 million in Q1 2023 [2] - Q1 2024 diluted EPS was $(0.30), compared to $(0.40) in Q4 2023 and $0.00 in Q1 2023 [2] - Non-GAAP net loss for Q1 2024 was $(2.7) million, compared to $(1.7) million in Q4 2023 and $11.1 million in Q1 2023 [3] - Operating loss for the three months ended March 29, 2024, was $3.7 million, an improvement from a loss of $8.0 million in the previous quarter [32] - U.S. GAAP net loss for Q1 2024 was $8.989 million, an improvement from a loss of $11.899 million in Q4 2023 [36] - Non-GAAP net loss for Q1 2024 was $2.712 million, compared to a loss of $1.675 million in Q4 2023 and a profit of $11.128 million in Q1 2023 [36] - Non-GAAP operating income for the three months ended March 29, 2024, was $2.4 million, compared to $13.7 million in the same period last year [32] - U.S. GAAP diluted EPS for Q1 2024 was $(0.30), improving from $(0.40) in Q4 2023 [36] - Non-GAAP diluted EPS for Q1 2024 was $(0.09), slightly worse than $(0.06) in Q4 2023 [36] Cash Flow and Liquidity - Cash and cash equivalents at the end of Q1 2024 were $102.1 million, an increase of $22.2 million from the prior year [6] - Cash provided by operating activities in Q1 2024 was $4.8 million, consisting of a net loss of $9.0 million and net non-cash charges of $10.2 million [8] - Net cash provided by operating activities for Q1 2024 was $4.804 million, down from $37.574 million in Q4 2023 [38] - Free cash flow for Q1 2024 was $314 thousand, a significant decrease from $35.317 million in Q4 2023 [38] - Cash and cash equivalents increased to $102.1 million as of March 29, 2024, up from $80.0 million at the end of the previous quarter [27] Debt and Assets - The company reduced total debt outstanding by $117 million at the end of Q1 2024 [3] - Total current assets rose to $421.2 million, compared to $401.4 million in the previous quarter [23] - Total liabilities decreased significantly to $260.2 million from $373.8 million in the previous quarter [23] - The company issued ordinary shares, net of fees, amounting to $136.7 million during the quarter [27] Expenses and Investments - Research and development expenses for the three months ended March 29, 2024, were $5.4 million, slightly down from $5.5 million in the previous quarter [25] - Capital expenditures in Q1 2024 were $4.490 million, compared to $2.257 million in Q4 2023 [38] - Share-based compensation expenses were $2.375 million in Q1 2024, down from $4.672 million in Q4 2023 [36] - The company incurred transaction-related costs of $785 thousand in Q1 2024 related to acquisitions [36] Future Outlook - For Q2 2024, the company expects revenue to be in the range of $190 million to $205 million and GAAP diluted EPS to be between $(0.22) and $(0.10) [4] - The company aims to deepen and expand its penetration of proprietary products in the semiconductor capital equipment market [1] Valuation and Tax - The company recorded a valuation allowance against U.S. federal and state deferred tax assets starting Q1 2024 [37]

Part I [Business](index=5&type=section&id=ITEM%201.%20BUSINESS) Ichor Holdings designs and manufactures critical fluid delivery subsystems for semiconductor capital equipment, with 2023 revenue of $811.1 million reflecting an industry downturn Key Financial Performance (2021-2023) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | **Revenue** | $811.1M | $1,280.1M | $1,096.9M | | **GAAP Net Income (Loss)** | $(43.0)M | $72.8M | $70.9M | | **Non-GAAP Net Income** | $12.3M | $104.9M | $97.7M | - The company is a leader in designing, engineering, and manufacturing critical fluid delivery subsystems (gas and chemical) for semiconductor capital equipment[16](index=16&type=chunk) - Ichor's top three customers, Applied Materials, Lam Research, and ASML, accounted for a combined **82% of sales in 2023**[37](index=37&type=chunk) [Company Overview](index=5&type=section&id=Company%20Overview) Ichor specializes in critical fluid delivery subsystems and vertically integrated components for semiconductor manufacturing, enabling OEMs to focus on core competencies - Primary products include gas delivery subsystems for 'dry' processes (etch, deposition) and chemical delivery subsystems for 'wet' processes (CMP, cleaning)[16](index=16&type=chunk) - The company also provides vertically integrated components like precision-machined parts, weldments, and surface treatment technologies[16](index=16&type=chunk) - Outsourcing to specialized suppliers like Ichor allows OEMs to leverage specialized engineering skills and focus on their core value-added processes[17](index=17&type=chunk) [Our Competitive Strengths](index=6&type=section&id=Our%20Competitive%20Strengths) Ichor's strengths include deep engineering expertise, early customer engagement, strong OEM relationships, operational excellence, and a capital-efficient model - Key strengths include: - Deep fluids engineering expertise with a team of chemical, mechanical, electrical, and software engineers - Early engagement in customers' product development, often leading to sole-source supplier status - Strong, long-term relationships with top-tier customers like Applied Materials, Lam Research, and ASML - Operational excellence with strategically located facilities and short lead times (often less than four weeks) - A capital-efficient and scalable business model with low fixed costs[21](index=21&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk) [Our Growth Strategy](index=8&type=section&id=Our%20Growth%20Strategy) Ichor's growth strategy focuses on increasing market share, expanding into new markets and products, acquiring new customers, and improving manufacturing efficiency - Grow market share with existing customers by leveraging engineering talent and expanded product offerings[26](index=26&type=chunk) - Expand total available market through new products in areas like machined components and chemical delivery, and by entering new sectors such as medical, aerospace, and defense via acquisitions[27](index=27&type=chunk)[28](index=28&type=chunk) - Expand the total customer base by engaging with new OEMs considering outsourcing their fluid delivery needs[29](index=29&type=chunk) - Continuously improve manufacturing process efficiency to reduce cycle times, lower costs, and improve profitability[30](index=30&type=chunk) [Customers, Sales, and Marketing](index=11&type=section&id=Customers%2C%20Sales%2C%20and%20Marketing) Ichor sells directly to a concentrated OEM customer base, with its top three customers accounting for **82% of 2023 sales**, operating on a purchase order basis - The semiconductor equipment market is highly concentrated, with **five companies accounting for over 70% of process tool revenues**[37](index=37&type=chunk) - For 2023, the **top three customers (Applied Materials, Lam Research, and ASML) represented a combined 82% of sales**[37](index=37&type=chunk) - The company generally operates on a purchase order basis and does not have long-term contracts with fixed or minimum volumes[37](index=37&type=chunk) [Competition](index=13&type=section&id=Competition) Ichor competes with other fluid delivery suppliers and OEM internal groups, with key factors including customer relationships, engineering, and manufacturing flexibility - The fluid delivery subsystem market is concentrated, with key competition from **Ultra Clean Technology** and regional suppliers[49](index=49&type=chunk) - Primary competitive factors emphasized are customer relationships, early engagement, engineering staff, cycle times, and manufacturing flexibility[49](index=49&type=chunk) [Human Capital Resources](index=14&type=section&id=Human%20Capital%20Resources) As of December 29, 2023, Ichor had **1,690 full-time employees**, focusing on competitive compensation, talent development, diversity, and safety Workforce Demographics (as of Dec 29, 2023) | Category | Number of People | | :--- | :--- | | Full-time employees | ~1,690 | | Contract/temporary workers | ~555 | | **By Function:** | | | Engineers | ~140 | | Sales & Marketing | ~110 | | Manufacturing | ~1,770 | | Executive & Administrative | ~225 | [Risk Factors](index=15&type=section&id=ITEM%201A.%20RISK%20FACTORS) Ichor faces significant risks from semiconductor industry cyclicality, customer concentration, competition, supply chain disruptions, and geopolitical factors [Economic and Strategic Risks](index=18&type=section&id=Economic%20and%20Strategic%20Risks) Ichor's business is highly exposed to the cyclical semiconductor industry, customer concentration, intense competition, and global economic and geopolitical instability - Business depends significantly on the **cyclical semiconductor capital equipment industry**[69](index=69&type=chunk)[70](index=70&type=chunk) - Reliance on a very small number of OEM customers is a major risk; in 2023, the **top three customers accounted for 82% of sales**[73](index=73&type=chunk) - The company is exposed to risks from global economic weakness, geopolitical instability (e.g., Russia-Ukraine conflict, Middle East conflict), and trade tensions between the U.S. and China[80](index=80&type=chunk) [Business and Operational Risks](index=22&type=section&id=Business%20and%20Operational%20Risks) Operational risks include manufacturing complexity, supply chain reliance, order uncertainties, IT system vulnerabilities, and dependence on key employee expertise - The manufacturing process is highly complex, and any failure to manage it effectively can lead to lost customers and liability[88](index=88&type=chunk) - Dependence on a limited number of suppliers for quality components may harm production and increase costs[92](index=92&type=chunk) - The business is subject to order and shipment uncertainties as it generally operates on short-term purchase orders rather than long-term contracts[96](index=96&type=chunk) - The business is vulnerable to IT system failures and cyber-attacks, with risks heightened by the evolving nature of threats and global political environment[97](index=97&type=chunk)[98](index=98&type=chunk) [Legal and Regulatory Risks](index=27&type=section&id=Legal%20and%20Regulatory%20Risks) Ichor faces legal and regulatory risks from data privacy laws, trade policy changes (e.g., BIS Rule), environmental compliance, and internal control requirements - The business is subject to complex international laws regarding data privacy, such as **GDPR** and **CCPA**[106](index=106&type=chunk) - Changes in U.S. or international trade policy, tariffs, and import/export regulations, such as the **BIS Rule impacting semiconductor-related exports to China**, may have a material adverse effect on business[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk) - The company previously identified and has since remediated material weaknesses in its internal control over financial reporting related to IT general controls[123](index=123&type=chunk) [Liquidity and Capital Resources Risks](index=33&type=section&id=Liquidity%20and%20Capital%20Resources%20Risks) Ichor faces liquidity risks from substantial variable-rate debt totaling **$250.0 million** as of December 29, 2023, and restrictive covenants - As of December 29, 2023, the company had **$135.0 million outstanding under its term loan** and **$115.0 million under its revolving credit facility**[129](index=129&type=chunk) - The credit facilities contain restrictive covenants limiting actions such as incurring additional debt, making investments, and paying dividends[129](index=129&type=chunk) - Borrowings are subject to variable interest rates, exposing the company to risk from rising rates[132](index=132&type=chunk) [Unresolved Staff Comments](index=36&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The company reports that it has no unresolved staff comments from the SEC - None[143](index=143&type=chunk) [Cybersecurity](index=36&type=section&id=ITEM%201C.%20CYBERSECURITY) Ichor's cybersecurity program, based on the **NIST Framework**, is overseen by the Audit Committee and CIO, focusing on risk assessment and employee training - The cybersecurity program utilizes the **National Institute of Standards and Technology (NIST) Cybersecurity Framework**[144](index=144&type=chunk) - Governance is managed by the Audit Committee of the Board, which receives regular reports, and overseen by the Chief Information Officer with over **25 years of experience**[148](index=148&type=chunk)[149](index=149&type=chunk) - The company provides annual cybersecurity awareness training and regular phishing exercises to its employees[146](index=146&type=chunk) [Properties](index=37&type=section&id=ITEM%202.%20PROPERTIES) As of December 29, 2023, Ichor leases approximately **865,700 square feet** for global manufacturing and administrative facilities Leased Facilities by Location | Location | Approximate Square Footage | | :--- | :--- | | California | 271,300 | | Oregon | 172,100 | | Minnesota | 113,300 | | Singapore | 97,700 | | Mexico | 62,900 | | Texas | 47,800 | | Scotland | 37,700 | | Malaysia | 31,900 | | Korea | 18,500 | | Nevada | 12,500 | [Legal Proceedings](index=38&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company is not currently involved in any material litigation or regulatory proceedings - The company is not presently a party to any material litigation or regulatory proceeding[152](index=152&type=chunk) [Mine Safety Disclosures](index=38&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Not applicable[153](index=153&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=38&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) Ichor's ordinary shares trade on NASDAQ under 'ICHR'; the company does not anticipate paying cash dividends soon - The company's ordinary shares trade on the NASDAQ under the symbol '**ICHR**'[158](index=158&type=chunk) - The company does not anticipate paying cash dividends for the foreseeable future[155](index=155&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=39&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) In 2023, net sales decreased to **$811.1 million**, resulting in a **$43.0 million net loss** due to a semiconductor industry downturn, despite positive operating cash flow [Results of Operations](index=45&type=section&id=Results%20of%20Operations) For 2023, net sales decreased by **36.6%** to **$811.1 million**, leading to a **$43.0 million net loss** due to reduced demand and higher interest and tax expenses Comparison of Net Sales (2023 vs 2022) | Period | 2023 | 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $811,120K | $1,280,069K | $(468,949)K | (36.6)% | Comparison of Gross Profit (2023 vs 2022) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Gross Profit | $103,396K | $211,864K | $(108,468)K | | Gross Margin | 12.7% | 16.6% | -390 bps | - The decrease in gross margin was primarily due to reduced factory utilization from lower volumes and a **60 basis point unfavorable impact** from increased excess and obsolete inventory expense[195](index=195&type=chunk) - Selling, general, and administrative (SG&A) expenses decreased by **10.4%** to **$79.3 million**, mainly due to reduced employee-related expenses and a **$4.1 million legal settlement accrual** in 2022 that did not recur[197](index=197&type=chunk) - Net interest expense increased by **75.3%** to **$19.4 million**, driven by a rise in the weighted average borrowing rate from **3.37% in 2022 to 6.80% in 2023**[199](index=199&type=chunk) - Income tax expense increased to **$11.9 million** from **$2.5 million in 2022**, primarily due to an **$11.1 million charge** for a valuation allowance against U.S. federal and state deferred tax assets[201](index=201&type=chunk) [Non-GAAP Financial Results](index=49&type=section&id=Non-GAAP%20Financial%20Results) In 2023, non-GAAP net income was **$12.3 million** (vs. **$43.0 million GAAP net loss**), reflecting adjustments for non-cash and infrequent charges Reconciliation of GAAP to Non-GAAP Net Income (2023) | Description | Amount (in thousands) | | :--- | :--- | | **U.S. GAAP net income (loss)** | **$(42,985)** | | Amortization of intangible assets | $14,734 | | Share-based compensation | $17,338 | | Other (severance costs) | $2,298 | | Tax adjustments related to non-GAAP items | $9,778 | | Tax expense from valuation allowance | $11,094 | | **Non-GAAP net income** | **$12,257** | GAAP vs. Non-GAAP Diluted EPS (2023) | Metric | 2023 | | :--- | :--- | | U.S. GAAP Diluted EPS | $(1.47) | | Non-GAAP Diluted EPS | $0.42 | [Liquidity and Capital Resources](index=51&type=section&id=Liquidity%20and%20Capital%20Resources) As of year-end 2023, Ichor had **$80.0 million** in cash, with **$57.6 million** from operations offsetting **$52.5 million** in net debt payments Summary of Cash Flows (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Cash provided by operating activities | $57,632 | $31,453 | | Cash used in investing activities | $(15,496) | $(28,933) | | Cash provided by (used in) financing activities | $(48,651) | $8,455 | | **Net increase (decrease) in cash** | **$(6,515)** | **$10,975** | - Cash from operations of **$57.6 million** was driven by non-cash charges (**$61.7 million**) and a decrease in net operating assets (**$38.9 million**), which offset the net loss of **$43.0 million**[215](index=215&type=chunk) - Cash used in financing activities included net payments on credit facilities of **$52.5 million**[219](index=219&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) Ichor faces interest rate risk from **$250.0 million** in variable-rate debt, with a **100 basis point** change impacting annual interest expense by **$2.5 million** - Foreign currency exchange risk is not considered material as most transactions are denominated in U.S. dollars[223](index=223&type=chunk) - The company has significant interest rate risk due to variable-rate debt. Total indebtedness was **$250.0 million** as of December 29, 2023[225](index=225&type=chunk) - A hypothetical **100 basis point** change in interest rates would result in a **$2.5 million** change to annualized interest expense[225](index=225&type=chunk) [Controls and Procedures](index=55&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management concluded disclosure controls and internal control over financial reporting were effective as of December 29, 2023, remediating prior ITGC weaknesses - Management concluded that disclosure controls and procedures were effective as of December 29, 2023[229](index=229&type=chunk) - A material weakness related to ITGCs in user access and program change management, disclosed in the 2022 Form 10-K, has been remediated as of December 29, 2023[232](index=232&type=chunk)[233](index=233&type=chunk)[234](index=234&type=chunk) Part III [Directors, Executive Officers, and Corporate Governance](index=57&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%2C%20AND%20CORPORATE%20GOVERNANCE) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Definitive Proxy Statement - Information is incorporated by reference from the registrant's Definitive Proxy Statement for its 2024 General Meeting[239](index=239&type=chunk) [Executive Compensation](index=57&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) Information on executive compensation is incorporated by reference from the 2024 Definitive Proxy Statement - Information is incorporated by reference from the registrant's Definitive Proxy Statement for its 2024 General Meeting[241](index=241&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=59&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) Information on security ownership is incorporated by reference from the 2024 Definitive Proxy Statement - Information is incorporated by reference from the registrant's Definitive Proxy Statement for its 2024 General Meeting[242](index=242&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=59&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) Information on related party transactions and director independence is incorporated by reference from the 2024 Definitive Proxy Statement - Information is incorporated by reference from the registrant's Definitive Proxy Statement for its 2024 General Meeting[243](index=243&type=chunk) [Principal Accountant Fees and Services](index=59&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) Information on principal accountant fees and services is incorporated by reference from the 2024 Definitive Proxy Statement - Information is incorporated by reference from the registrant's Definitive Proxy Statement for its 2024 General Meeting[244](index=244&type=chunk) Part IV [Exhibit and Financial Statement Schedules](index=59&type=section&id=ITEM%2015.%20EXHIBIT%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This section presents the audited consolidated financial statements and exhibits, with KPMG LLP issuing an unqualified opinion - The independent registered public accounting firm, **KPMG LLP**, issued an unqualified opinion on the consolidated financial statements and on the effectiveness of the company's internal control over financial reporting as of December 29, 2023[251](index=251&type=chunk)[259](index=259&type=chunk) - The auditor's report identified the 'Evaluation of excess and obsolete inventory' as a Critical Audit Matter due to the subjective judgment required in evaluating assumptions about future inventory consumption[262](index=262&type=chunk)[264](index=264&type=chunk)[265](index=265&type=chunk) [Consolidated Balance Sheets](index=63&type=section&id=Consolidated%20Balance%20Sheets) As of December 29, 2023, total assets were **$938.5 million**, with total liabilities at **$373.8 million**, reflecting decreases in receivables and inventories Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 29, 2023 | Dec 30, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | $401,365 | $513,458 | | Inventories | $245,885 | $283,660 | | Goodwill | $335,402 | $335,402 | | **Total Assets** | **$938,481** | **$1,083,742** | | **Total Current Liabilities** | $98,962 | $166,292 | | Long-term debt, net | $241,183 | $293,218 | | **Total Liabilities** | **$373,804** | **$496,246** | | **Total Shareholders' Equity** | **$564,677** | **$587,496** | [Consolidated Statements of Operations](index=64&type=section&id=Consolidated%20Statements%20of%20Operations) For 2023, net sales were **$811.1 million**, resulting in a **$43.0 million net loss** or **($1.47) diluted EPS**, a reversal from 2022 net income Statement of Operations Summary (in thousands, except per share data) | Account | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net sales | $811,120 | $1,280,069 | $1,096,917 | | Gross profit | $103,396 | $211,864 | $177,480 | | Operating income (loss) | $(10,895) | $85,823 | $81,014 | | Net income (loss) | $(42,985) | $72,804 | $70,899 | | Diluted EPS | $(1.47) | $2.51 | $2.45 | [Notes to Consolidated Financial Statements](index=67&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, including inventory valuation, revenue recognition, and goodwill testing, with specifics on tax, debt, and segment reporting - Inventories are valued at the lower of cost or net realizable value. The excess and obsolete inventory provision increased from **$17.5 million in 2022 to $28.4 million in 2023** (Note 3)[318](index=318&type=chunk)[319](index=319&type=chunk) - A valuation allowance of **$28.0 million** was recorded against deferred tax assets as of Dec 29, 2023, as it was determined not more-likely-than-not that U.S. entities will generate sufficient taxable income to realize them (Note 7)[328](index=328&type=chunk)[329](index=329&type=chunk) - The company's credit facilities mature on **October 29, 2026**, and require maintaining a minimum fixed charge coverage ratio of **1.25:1** and a maximum leverage ratio of **3.50:1** (Note 9)[338](index=338&type=chunk)[339](index=339&type=chunk) Sales by Major Customer (as % of Net Sales) | Customer | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Applied Materials | 36.4% | 31.0% | 32.1% | | Lam Research | 35.4% | 48.1% | 52.8% | | ASML | 10.6% | <10% | <10% | | **Total % from Major Customers** | **82.4%** | **~79%** | **~85%** |

Financial Data and Key Metrics Changes - The company reported cash and equivalents of $80 million, a $4 million increase from Q3, and generated $37.6 million in cash flow from operations, resulting in a free cash flow of $35.3 million after capital expenditures of $2.3 million [1] - The company paid down $31.2 million of debt, with a net debt coverage ratio of 3.4 times [1] - Q4 revenues were $203 million, reflecting a sequential growth of 3% from Q3, but gross margin was only 10.4%, significantly below expectations due to unfavorable product mix and inventory sales at zero margin [46][50] Business Line Data and Key Metrics Changes - The build-to-print gas panel business, which is the lowest margin segment, improved during the quarter, offsetting a decrease in the weldment business as customers focused on reducing inventory levels [34] - The company expects a significant improvement in gross margins as it moves through 2024, driven by new product introductions and recovery in the component business [49][50] Market Data and Key Metrics Changes - The company estimates that its exposure to memory wafer fabrication equipment (WFE) declined to about 25% in 2023, positioning it to outperform industry growth as memory spending improves, particularly in the NAND segment [35] - The silicon carbide market for gas delivery is estimated to be around $60 million in 2023, expected to double in the next three to four years, driven by new technology drivers and process inflections [48] Company Strategy and Development Direction - The company is focused on developing proprietary products, including next-generation gas panels, which contain about 75% proprietary content compared to around 10% previously, aiming to drive gross margin expansion above 20% [36] - The company is pursuing opportunities in growing market segments such as EUV lithography and FE gas panels for silicon carbide, with expectations of expanding its customer base and revenue potential [35][48] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about growth ahead, anticipating a revenue run rate around $200 million through the first half of 2024, followed by a ramp in the second half, with expectations for a strong recovery year in 2025 [56] - The company noted that the business environment for WFE is expected to remain stable through the first half of 2024, with modest mid-single-digit growth outlook for the full year [56] Other Important Information - The company won a supplier excellence award from Applied Materials for quality in 2023, highlighting its contributions to customer success [12] - The company is making targeted investments in IT and R&D, with operating expenses expected to remain at a similar level beyond Q1 2024 [38] Q&A Session Summary Question: Can you clarify the gross margin dynamics in Q4 and how they will play out in 2024? - Management indicated that the decision to sell inventory at cost impacted gross margin significantly, with a mix shift towards lower-margin products being a major factor [52] Question: What is the outlook for the component business this year? - Management expects the component business to recover, with design wins contributing to growth, but noted that the ramp is taking longer due to existing inventory levels [18] Question: How do you see the revenue potential from your two largest customers? - Management acknowledged different profiles for the two largest customers, with expectations of revenue growth driven by memory market recovery and ongoing discussions with customers about future demand [16][24]