Ichor (ICHR) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) This section presents the unaudited consolidated financial statements, including balance sheets, operations, equity, and cash flows Consolidated Balance Sheets Total assets and shareholders' equity slightly decreased due to a reduction in cash and accounts receivable Consolidated Balance Sheet Highlights (in thousands) | Metric | June 27, 2025 | December 27, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $92,224 | $108,669 | | Accounts receivable, net | $80,821 | $86,619 | | Inventories | $259,373 | $250,102 | | Total current assets | $439,128 | $452,620 | | Property and equipment, net | $108,907 | $94,867 | | Total assets | $985,068 | $995,564 | | Total current liabilities | $136,423 | $135,670 | | Total liabilities | $290,921 | $297,228 | | Total shareholders' equity | $694,147 | $698,336 | Consolidated Statements of Operations Net sales grew 18.2% year-over-year, but higher costs and taxes led to an increased net loss Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended June 27, 2025 | Three Months Ended June 28, 2024 | Six Months Ended June 27, 2025 | Six Months Ended June 28, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $240,285 | $203,227 | $484,750 | $404,610 | | Gross profit | $27,202 | $25,557 | $55,724 | $48,551 | | Operating loss | $(4,840) | $(2,262) | $(6,012) | $(6,003) | | Net loss | $(9,408) | $(5,112) | $(13,967) | $(14,101) | | Basic Net loss per share | $(0.28) | $(0.15) | $(0.41) | $(0.44) | | Diluted Net loss per share | $(0.28) | $(0.15) | $(0.41) | $(0.44) | Consolidated Statements of Shareholders' Equity Total shareholders' equity decreased slightly due to the net loss, partially offset by share-based compensation Changes in Shareholders' Equity (in thousands) | Metric | Balance at Dec 27, 2024 | Net Loss (6 months) | Share-based Compensation (6 months) | Ordinary Shares Issued (6 months) | Balance at Jun 27, 2025 | | :--- | :--- | :--- | :--- | :--- | :--- | | Additional Paid-In Capital | $606,060 | - | $8,350 | $1,430 | $615,838 | | Retained Earnings | $183,851 | $(13,967) | - | - | $169,884 | | Total Shareholders' Equity | $698,336 | $(13,967) | $8,350 | $1,430 | $694,147 | Consolidated Statements of Cash Flows Net cash from operations decreased significantly, while cash used in investing increased due to higher capital expenditures Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Six Months Ended June 27, 2025 | Six Months Ended June 28, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $11,469 | $22,296 | | Net cash used in investing activities | $(25,772) | $(7,337) | | Net cash provided by (used in) financing activities | $(2,142) | $19,435 | | Net increase (decrease) in cash | $(16,445) | $34,394 | | Cash at end of period | $92,224 | $114,349 | Notes to Consolidated Financial Statements This section provides detailed disclosures on accounting policies, asset breakdowns, debt, and income taxes Note 1 – Basis of Presentation and Selected Significant Accounting Policies - The company changed its accounting estimate for CNC machinery useful lives from 7 to 10 years, effective Q2 2025, decreasing depreciation expense by $1.0 million and reducing Operating loss and Net loss by approximately $1.0 million for the three and six months ended June 27, 2025[24] - Revenue is recognized when control of promised goods or services is transferred to customers, primarily for products like fluid delivery subsystems and weldments, generally at the time of shipment[27][29] - The FASB issued ASU 2023-09 (Improvements to Income Tax Disclosures) and ASU 2024-03 (Disaggregation of Income Statement Expenses), which the company is currently evaluating for potential impacts on its consolidated financial statements[31][32] Note 2 – Inventories Inventories Breakdown (in thousands) | Category | June 27, 2025 | December 27, 2024 | | :--- | :--- | :--- | | Raw materials | $200,954 | $197,975 | | Work in process | $49,641 | $45,075 | | Finished goods | $45,844 | $43,445 | | Excess and obsolete adjustment | $(37,066) | $(36,393) | | Total inventories | $259,373 | $250,102 | Note 3 – Property and Equipment and Other Noncurrent Assets Property and Equipment, Net (in thousands) | Category | June 27, 2025 | December 27, 2024 | | :--- | :--- | :--- | | Machinery | $140,086 | $123,509 | | Construction-in-process | $18,965 | $12,612 | | Total property and equipment, net | $108,907 | $94,867 | - Depreciation expense was $5.5 million for Q2 2025 (vs $5.3 million in Q2 2024) and $11.1 million for the six months ended June 27, 2025 (vs $10.4 million in the prior year period)[34][35] - Capitalized cloud computing implementation costs, net of accumulated amortization, increased to $13.3 million as of June 27, 2025, from $11.2 million as of December 27, 2024[36] Note 4 – Intangible Assets Definite-Lived Intangible Assets, Net (in thousands) | Category | June 27, 2025 | December 27, 2024 | | :--- | :--- | :--- | | Customer relationships | $40,744 | $44,363 | | Developed technology | $3,816 | $4,353 | | Total intangible assets | $44,560 | $48,716 | Note 5 – Leases - A $1.3 million non-cash impairment charge was recorded for an ROU lease asset due to the abandonment of Scotland operations, included in selling, general, and administrative expenses[40] Operating Lease Costs (in thousands) | Period | June 27, 2025 | June 28, 2024 | | :--- | :--- | :--- | | Three Months Ended | $2,885 | $2,492 | | Six Months Ended | $5,630 | $4,984 | Lease Liabilities and Terms | Metric | June 27, 2025 | December 27, 2024 | | :--- | :--- | :--- | | Weighted-average remaining lease term of operating leases | 5.8 years | 6.1 years | | Weighted-average discount rate of operating leases | 4.9% | 4.7% | | Total lease liabilities, less current portion | $30,300 | $34,189 | Note 6 – Income Taxes - The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, enacting significant changes to U.S tax laws The company is evaluating its impact, expecting it to be included in Q3 2025 financial statements[42] - The increase in income tax expense and the change in effective tax rate are primarily due to additional tax expense provisioned in Singapore related to Pillar Two minimum tax rules and increased withholding taxes[43] Income Tax Expense and Effective Rate (in thousands) | Metric | Three Months Ended June 27, 2025 | Three Months Ended June 28, 2024 | Six Months Ended June 27, 2025 | Six Months Ended June 28, 2024 | | :--- | :--- | :--- | :--- | :--- | | Income tax expense | $2,740 | $942 | $4,400 | $1,855 | | Loss before income taxes | $(6,668) | $(4,170) | $(9,567) | $(12,246) | | Effective income tax rate | (41.1)% | (22.6)% | (46.0)% | (15.1)% | Note 7 – Employee Benefit Programs 401(k) Matching Contributions (in thousands) | Period | June 27, 2025 | June 28, 2024 | | :--- | :--- | :--- | | Three Months Ended | $700 | $600 | | Six Months Ended | $1,500 | $1,400 | Note 8 – Long-Term Debt - The credit agreement includes a $150.0 million term loan facility and a $250.0 million revolving credit facility, maturing on October 29, 2026 Term loan principal payments of $1.9 million are due quarterly[46] - As of June 27, 2025, credit facilities bore interest under the SOFR option at 6.07%[47] Long-Term Debt, Net (in thousands) | Category | June 27, 2025 | December 27, 2024 | | :--- | :--- | :--- | | Term loan | $125,625 | $129,375 | | Less unamortized debt issuance costs | $(620) | $(852) | | Total long-term debt, net | $125,005 | $128,523 | | Less current portion | $(7,500) | $(7,500) | | Total long-term debt, less current portion, net | $117,505 | $121,023 | Note 9 – Share‑Based Compensation - The 2025 Omnibus Incentive Plan was approved by stockholders on May 14, 2025, allowing for the issuance of 2,963,471 shares for awards, replacing the 2016 Plan[48] - Approximately 2.1 million ordinary shares remain available for purchase under the 2017 Employee Stock Purchase Plan (ESPP)[54] Share-Based Compensation Expense (in thousands) | Period | June 27, 2025 | June 28, 2024 | | :--- | :--- | :--- | | Three Months Ended | $4,227 | $3,938 | | Six Months Ended | $8,350 | $6,313 | Note 10 – Earnings per Share - Potentially dilutive options and RSUs (ranging from 1.995 million to 2.492 million shares) were excluded from the diluted EPS calculation because their inclusion would have been antidilutive due to the net loss[55] Net Loss Per Share | Metric | Three Months Ended June 27, 2025 | Three Months Ended June 28, 2024 | Six Months Ended June 27, 2025 | Six Months Ended June 28, 2024 | | :--- | :--- | :--- | :--- | :--- | | Basic EPS | $(0.28) | $(0.15) | $(0.41) | $(0.44) | | Diluted EPS | $(0.28) | $(0.15) | $(0.41) | $(0.44) | | Basic weighted average ordinary shares outstanding | 34,179,382 | 33,548,071 | 34,088,873 | 31,779,521 | | Diluted weighted average ordinary shares outstanding | 34,179,382 | 33,548,071 | 34,088,873 | 31,779,521 | Note 11 – Segment Information - The company operates as a single business operating segment, focusing on the design, engineering, and manufacturing of critical fluid delivery subsystems and components for semiconductor capital equipment[57] Net Sales by Geographic Area (in thousands) | Geographic Area | Three Months Ended June 27, 2025 | Three Months Ended June 28, 2024 | Six Months Ended June 27, 2025 | Six Months Ended June 28, 2024 | | :--- | :--- | :--- | :--- | :--- | | Singapore | $106,870 | $81,541 | $215,958 | $160,667 | | United States of America | $76,684 | $69,259 | $152,494 | $133,653 | | Europe | $25,279 | $21,307 | $50,412 | $52,656 | | Other | $31,452 | $31,120 | $65,886 | $57,634 | | Total net sales | $240,285 | $203,227 | $484,750 | $404,610 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses financial results, highlighting increased sales from semiconductor demand alongside a larger net loss from higher costs Cautionary Statement Concerning Forward-Looking Statements - Forward-looking statements are subject to risks including geopolitical, economic, and market conditions (inflation, interest rates, currency fluctuations, supply chain disruptions, conflicts), dependence on semiconductor capital equipment industry cycles and OEMs, and challenges in attracting and retaining key personnel[60] Overview - The company specializes in designing, engineering, and manufacturing critical fluid delivery subsystems and components for semiconductor capital equipment, including gas and chemical delivery systems[64] - The company also provides precision-machined components and other proprietary products for commercial space, aerospace, defense, medical device, and general-industrial industries[64] - OEMs increasingly outsource fluid delivery subsystems due to specialized engineering, design, and production skills required, allowing them to reduce costs and development time[65] Macroeconomic Conditions and Business Update - Overall semiconductor equipment spending in 2025 is anticipated to grow over 2024 levels, particularly in the primary markets of etch and deposition, where current demand remains healthy[68] - The company remains confident in the long-term demand for semiconductors, semiconductor capital equipment, and its products, driven by the increasing need for expanded productive capacity and advanced manufacturing process technologies[69] - Tariffs have not materially impacted demand for products or costs for materials to date, and current exclusions/exemptions (e.g, U.S-Mexico-Canada Agreement) remain applicable, but their indefinite continuation is not assured[68] Results of Operations Sales increased 18.2% in Q2 2025, but gross margin fell and operating expenses rose, leading to a larger net loss Net sales - The increase in net sales was primarily due to increased customer demand resulting from a stronger semiconductor capital equipment spending environment[74] Net Sales (in thousands) | Period | June 27, 2025 | June 28, 2024 | Change Amount | Change % | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended | $240,285 | $203,227 | $37,058 | 18.2% | | Six Months Ended | $484,750 | $404,610 | $80,140 | 19.8% | Gross margin - The decrease in gross margin was primarily due to increased material costs, unfavorable sales mix, and $1.6 million in inventory write-off costs associated with the planned exit from Scotland operations[75][76] - The decrease was partially offset by reduced excess and obsolete inventory expense ($1.3 million for Q2, $2.9 million for six months)[75][76] Gross Profit and Margin (in thousands) | Metric | Three Months Ended June 27, 2025 | Three Months Ended June 28, 2024 | Change Amount | Change % | | :--- | :--- | :--- | :--- | :--- | | Cost of sales | $213,083 | $177,670 | $35,413 | 19.9% | | Gross profit | $27,202 | $25,557 | $1,645 | 6.4% | | Gross margin | 11.3% | 12.6% | -130 bps | | | Six Months Ended June 27, 2025 | Six Months Ended June 28, 2024 | Change Amount | Change % | | Cost of sales | $429,026 | $356,059 | $72,967 | 20.5% | | Gross profit | $55,724 | $48,551 | $7,173 | 14.8% | | Gross margin | 11.5% | 12.0% | -50 bps | | Research and development - Fluctuations in R&D expenses were primarily due to changes in material and service costs from new product development programs and in employee-related expenses, inclusive of share-based compensation expense, and professional legal expenses[77] Research and Development Expenses (in thousands) | Period | June 27, 2025 | June 28, 2024 | Change Amount | Change % | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended | $5,710 | $5,926 | $(216) | (3.6)% | | Six Months Ended | $11,584 | $11,296 | $288 | 2.5% | Selling, general, and administrative - Key drivers for the increase in SG&A include: $2.0 million in exit disposal costs for Scotland operations, $1.3 million (Q2) / $1.5 million (6 months) in employee health insurance claims, and increased software, IT services, and outside service provider costs[78][79] Selling, General, and Administrative Expenses (in thousands) | Period | June 27, 2025 | June 28, 2024 | Change Amount | Change % | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended | $24,254 | $19,807 | $4,447 | 22.5% | | Six Months Ended | $45,996 | $39,026 | $6,970 | 17.9% | Amortization of intangible assets Amortization of Intangible Assets (in thousands) | Period | June 27, 2025 | June 28, 2024 | Change Amount | Change % | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended | $2,078 | $2,086 | $(8) | (0.4)% | | Six Months Ended | $4,156 | $4,232 | $(76) | (1.8)% | Interest expense, net - The decrease in interest expense was primarily driven by the payoff of the revolving credit facility near the end of Q1 2024 and lower SOFR rates[81] Interest Expense, Net (in thousands) | Metric | Three Months Ended June 27, 2025 | Three Months Ended June 28, 2024 | Change Amount | Change % | | :--- | :--- | :--- | :--- | :--- | | Interest expense, net | $1,635 | $1,858 | $(223) | (12.0)% | | Weighted average borrowings outstanding | $125,666 | $133,104 | $(7,438) | (5.6)% | | Weighted average borrowing rate | 6.06% | 7.45% | -139 bps | | | Six Months Ended June 27, 2025 | Six Months Ended June 28, 2024 | Change Amount | Change % | | Interest expense, net | $3,281 | $5,954 | $(2,673) | (44.9)% | | Weighted average borrowings outstanding | $126,614 | $188,520 | $(61,906) | (32.8)% | | Weighted average borrowing rate | 6.15% | 7.53% | -138 bps | | Other expense, net - The change in other expense, net, was primarily due to currency exchange rate fluctuations related to local currency payables and cash holdings of foreign operations[82] Other Expense, Net (in thousands) | Period | June 27, 2025 | June 28, 2024 | Change Amount | Change % | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended | $193 | $50 | $143 | 286.0% | | Six Months Ended | $274 | $289 | $(15) | (5.2)% | Income tax expense - The increase in income tax expense was primarily due to additional tax expense provisioned in Singapore in connection with Pillar Two minimum tax rules and increased withholding taxes[83] Income Tax Expense and Effective Rate (in thousands) | Metric | Three Months Ended June 27, 2025 | Three Months Ended June 28, 2024 | Change Amount | Change % | | :--- | :--- | :--- | :--- | :--- | | Income tax expense | $2,740 | $942 | $1,798 | 190.9% | | Loss before income taxes | $(6,668) | $(4,170) | $(2,498) | 59.9% | | Effective income tax rate | (41.1)% | (22.6)% | -1,850 bps | | | Six Months Ended June 27, 2025 | Six Months Ended June 28, 2024 | Change Amount | Change % | | Income tax expense | $4,400 | $1,855 | $2,545 | 137.2% | | Loss before income taxes | $(9,567) | $(12,246) | $2,679 | (21.9)% | | Effective income tax rate | (46.0)% | (15.1)% | -3,090 bps | | Non‑GAAP Financial Results Non-GAAP net income was $1.1 million in Q2 2025, excluding items like amortization and facility shutdown costs - Non-GAAP metrics exclude amortization of intangible assets, share-based compensation expense, and discrete or infrequent charges and gains (e.g, transaction-related costs, facility shutdown costs, severance costs), and related tax impacts[85] - Non-GAAP adjustments for Q2 2025 included $2.078 million for amortization of intangible assets, $4.227 million for share-based compensation, and $4.296 million for facility shutdown costs (including $1.6 million inventory write-off and $1.3 million ROU asset impairment related to Scotland operations exit)[90][92] Non-GAAP Financial Highlights (in thousands, except per share amounts) | Metric | Three Months Ended June 27, 2025 | Three Months Ended June 28, 2024 | Six Months Ended June 27, 2025 | Six Months Ended June 28, 2024 | | :--- | :--- | :--- | :--- | :--- | | U.S. GAAP net loss | $(9,408) | $(5,112) | $(13,967) | $(14,101) | | Non-GAAP net income (loss) | $1,097 | $1,819 | $5,333 | $(893) | | U.S. GAAP diluted EPS | $(0.28) | $(0.15) | $(0.41) | $(0.44) | | Non-GAAP diluted EPS | $0.03 | $0.05 | $0.16 | $(0.03) | | Non-GAAP operating margin | 2.6% | 2.2% | 2.6% | 1.7% | | Non-GAAP gross margin | 12.5% | 13.0% | 12.4% | 12.6% | Liquidity and Capital Resources Cash decreased by $16.4 million due to capital expenditures and debt repayments, offset by operating cash flow - The company believes that its cash and cash equivalents, the amounts available under its credit facilities, and its operating cash flow will be sufficient to fund its business and current obligations for at least the next 12 months and beyond[96] Material Cash Requirements - Primary liquidity requirements include working capital, business acquisitions, interest and principal payments under credit facilities, research and development investments and capital expenditures, payment of income taxes, and payments associated with noncancellable leases and related occupancy costs[95] Sources and Conditions of Liquidity - Ongoing sources of liquidity are primarily derived from sales to customers and related changes in net operating assets and liabilities, and proceeds from credit facilities and equity offerings, when applicable[97] Summary of Cash Flows - The decrease in cash provided by operating activities was primarily due to unfavorable changes in working capital of $15.9 million, partially offset by an increase in net non-cash charges and a decrease in net loss[100] - Cash used in financing activities decreased significantly year-over-year due to the prior year's $136.7 million proceeds from an ordinary share issuance, partially offset by the payoff of a $115 million revolving credit facility in Q1 2024[101] Summary of Cash Flows (in thousands) | Activity | Six Months Ended June 27, 2025 | Six Months Ended June 28, 2024 | | :--- | :--- | :--- | | Cash provided by operating activities | $11,469 | $22,296 | | Cash used in investing activities | $(25,772) | $(7,337) | | Cash provided by (used in) financing activities | $(2,142) | $19,435 | | Net increase (decrease) in cash | $(16,445) | $34,394 | | Cash at end of period | $92,224 | $114,349 | Critical Accounting Estimates - Significant estimates include inventory valuation, uncertain tax positions, valuation allowance on deferred tax assets, and impairment analysis for both definite-lived intangible assets and goodwill[23] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes to market risk disclosures since the 2024 Annual Report on Form 10-K - No material changes to market risk disclosures since the 2024 Annual Report on Form 10-K[104] ITEM 4. CONTROLS AND PROCEDURES Disclosure controls and procedures were evaluated and found to be effective as of the end of the reporting period Evaluation of Disclosure Controls and Procedures - Disclosure controls and procedures were evaluated and deemed effective as of June 27, 2025, providing reasonable assurance of achieving control objectives[105] Inherent limitations on Effectiveness of Controls and Procedures - Internal control over financial reporting has inherent limitations, including human error and circumvention, providing only reasonable assurance, not preventing or detecting all misstatements[106] Changes in Internal Control Over Financial Reporting - No material changes in internal control over financial reporting occurred during the reporting period[107] PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The company is not currently a party to any material legal proceedings - No material adverse legal proceedings are currently active against the company or its subsidiaries[108] ITEM 1A. RISK FACTORS This section refers to the risk factors detailed in the 2024 Annual Report on Form 10-K - Readers should refer to the risk factors in the 2024 Annual Report on Form 10-K, as this report does not identify all risks, and past financial results are not reliable indicators of future performance[109] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS There were no unregistered sales of equity securities or use of proceeds to report during the period - None to report[110] ITEM 3. DEFAULTS UPON SENIOR SECURITIES There were no defaults upon senior securities to report during the period - None to report[111] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company - Not applicable[112] ITEM 5. OTHER INFORMATION There is no other information to report under this item - None to report[113] ITEM 6. EXHIBITS This section lists the exhibits filed with the Form 10-Q, including certifications and Inline XBRL documents - Exhibits include forms of Performance Restricted Stock Unit Agreement and Restricted Stock Unit Agreement under the 2025 Omnibus Incentive Plan, certifications of principal executive and financial officers, and Inline XBRL documents[114] SIGNATURES The report is duly signed by the Chief Executive Officer and Chief Financial Officer - The report was signed by Jeffrey S Andreson (CEO) and Greg Swyt (CFO) on August 5, 2025[119]