Ichor Holdings

Good day, ladies and gentlemen, and welcome to I-Corps' second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Claire McAdams, Investor Relations for I-Corps. Please go ahead.

Thank you, Devin. Good afternoon, and thank you for joining today's second quarter 2022 conference call. As you read our earnings press release and you listen to this conference call, please recognize that both contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control and which could cause actual results to differ materially from such statements. These risks and uncertainties include those spelled out in our earnings press release, those described in our annual report on Form 10-K for fiscal 2021, and those described in subsequent filings with the SEC. You should consider all forward-looking statements in light of those and other risks and uncertainties. Additionally, we will be providing certain non-GAAP financial measures during this conference call. Our earnings press release and the financial supplement posted to our IR website today each provide a reconciliation of these non-GAAP financial measures to their most comparable GAAP financial measures. On the call with me today are Jeff Andreessen, our CEO, and Larry Sparks, our CFO. Jeff will begin with an update on our business and a review of our results and outlook, and then Larry will provide additional details of our second quarter results and third quarter guidance. After the prepared remarks, we will open the line for questions. I'll now turn over the call to Jeff Andreessen. Jeff?

Thank you, Claire, and welcome to our Q2 earnings call. Q2 revenues were $330 million at the upper end of our guidance range and were up 12% from the first quarter. After several quarters of supply chain challenges that limited the industry's availability of components and appreciably constrained our output, We were pleased to see several areas of improvement in Q2. These improvements, along with strong operational execution and improving factory efficiencies, enabled us to achieve record output and very strong financial results. As expected, we saw gross margins bounce back to 17%, with the higher revenue volumes now absorbing the investments we have been making to increase capacity across our footprint. These investments include adding to our manufacturing headcount as well as our physical capacity. Given the headcount we have in place today and the sequential growth we see the remainder of the year, we expect to deliver continued gross margin expansion at these revenue levels. With continued close management of operating expenses, we exceeded the upper end of our profitability targets and reported earnings of 98 cents per share. We completed our clean room expansion in Austin during Q2, and we have enough brick and mortar in place in our weldments business to support the next several years. Selective expansions of capacity for strategic growth areas continue in Portland, as well as in our machining business in Minnesota and Mexico, all in support of a $425 million level of capacity per quarter. Compared to a quarter ago, concerns about the sustainability of these unprecedented levels of wafer fab equipment spending have increased. A number of reports since our last call have indicated a slowdown in consumer-driven segments of the semiconductor industry, declining memory prices, and an inventory correction, all ahead of an expected recession. Therefore, as a management team, we must balance managing the near-term business outlook while ensuring that we are investing for the future. We are working in lockstep with our customers to plan delivery schedules, optimize the supply chain, and meet their end customers' demands. While we are all focused on the long-term demand signals that will impact our outlook for the next two to three years, given our current visibility, we expect to continue to achieve sequential revenue growth in the third quarter and through the forthcoming quarters as well. Despite the supply chain improvements and higher factory output levels achieved in the second quarter, customer demand continues to outpace supply, and we expect the unmet demand will continue to carry over into the forthcoming quarters until the supply chain catches up with demand. Industry forecasts recently tempered expectations for WFE growth in 2022 to now about 9% or 10% growth over 2021. as a result of the limitations within the supply chain. Now that our output levels have picked up considerably and given the continued increases in output expected in both Q3 and Q4 of this year, we are well on track towards achieving our growth objective established earlier in the year of around 20% revenue growth for 2022. Revenue growth for I-Corps approaching 20% this year would reflect faster growth compared to overall WFE, given the relatively strong performance of etched deposition and EVO growth this year, as well as the addition of IMG. I'm very pleased with the performance and growth trajectory of our IMG acquisition. They are seeing growth across their customer base, which includes semi, defense, and aviation, including commercial space. We now expect IMG to contribute between $75 and $80 million of revenue for the full year. As I mentioned, as we look ahead to 2023, we are working in lockstep with our customers and planning delivery schedules through the next several quarters. Visibility continues to extend much further than historical cycles. Lead times remain elongated. And even with looming recessionary concerns, the majority of wafer fab equipment purchases are considered critical investments in technology and capacity and, so far, While there are some delivery schedule adjustments to align the supply chain, at this time we are not seeing any pushouts of demand. Therefore, even though we have not experienced any changes in customer demand so far, we have a variable operating model and can quickly adjust. Should we begin to see any softening in demand or delays in our customers' delivery schedules, we have a number of levers we can utilize to adjust to any changes in volume. and we have a strong track record of managing the company profitability through periods of lower revenues. In the meantime, we continue to focus on investing in strategic and gross margin accretive capacity additions in close partnership with our customers in order to expand our share of our served markets, demonstrate strong operational leverage, and make continued progress towards our long-term profitability objectives. Now I'll provide a brief update on the progress on some of the new products and, in particular, the next generation gas panel and chemical delivery systems. For our next generation gas panel, we are still in the qualification phase for our first evaluation unit that's shipped to a new customer. We had planned to ship our second beta unit by mid-year and now expect to ship it by the end of August. This unit is shipping to an existing customer for a new application that is expected to outgrow the WFE market over the next several years. As a reminder, both of these gas panel beta units are fully configured with I-Corps content. We would expect both of these evaluations to extend up to a year. We remain confident and highly encouraged by the progress we are making with our customers for these proprietary gas delivery systems. In our chemical delivery business, the two evaluations remain underway with a North American customer. We continue to work with this customer as we move through the evaluation phases for both programs. As we said on the last call, these evaluations are expected to be completed in early 2023. In summary, in a very challenging operating environment, the operations team did a very good job of maximizing output to address the customer demand we are experiencing. With our current visibility, we are expecting to report sequential growth and record-setting revenues for the forthcoming quarters. For the full year, we are well on track to deliver on our objective to outperform industry growth and deliver record results for both revenue and earnings per share. And with that, I'll now turn the call over to Larry. Larry?