Ichor Holdings

Good day, ladies and gentlemen, and welcome to I-Corps' first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session, and instructions will be given at that time. To ask a question, you may press star 1 on your telephone keypad. As a reminder, this call is being recorded. I'd now like to introduce your host for today's conference, Claire McAdams, Investor Relations for I-Corps. Please go ahead.

Thank you, operator. Good afternoon, and thank you for joining today's first quarter 2024 conference call. As you read our earnings press release and as 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 2023, 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 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 Greg Swite, our CFO. Jeff will begin with an update on our business, and then Greg will provide additional details about our results and 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 Q1 earnings call. As expected, our Q1 revenues were similar to Q4 levels at $201 million, reflecting the relatively stable demand environment within the wafer fab equipment market. Q1 gross margin of 12.2% increased sequentially from Q4, but not quite as much as we had forecast due to a combination of mix and cost. Revenue mix was slightly less favorable than our earlier expectations for Q1 revenues. Q1 was a particularly back-end loaded quarter, with about one-third of our revenue shipping in the final three weeks of the quarter. The high volume of shipments at quarter end were highly weighted to gas panels compared to components, and our overall mix of higher margin components decreased compared to Q4, versus our prior expectation for sequential growth in our components businesses. At the same time, we witnessed a late quarter slowing in build rates for EUV gas delivery associated with order delays and leading edge logic. We remain on track with our strategy to drive gross margin improvement through greater integration of proprietary components and continued cost reduction initiatives. In Q1, we achieved a sequential uptick in proprietary content that was aligned with our expectations, but with higher than expected costs as we begin to ramp these products. With continued execution of our gross margin improvement strategies, we are driving further expansion of our margin profile at the similar revenue levels expected in Q2. Our earnings for the quarter came in below guidance because of a combination of gross profit impacts as well as a change in the tax provision, as Greg will cover shortly. We completed an equity offering in early March that yielded net proceeds of $137 million. We paid down the entire balance of our revolver, vastly improving our leverage ratio and cutting expected interest expenses by over half. With this transaction, we believe we have significantly improved the company's capital structure, as well as our earnings leverage and overall flexibility to execute against future strategic objectives. Now I'll turn to our outlook for the year. Expectations for industry demand in 2024 have remained relatively stable year-to-date, Within an overall WFE landscape that is expected to be similar to modestly up from 2023, the current revenue baseline for I-Corps continues to be fairly stable at the $200 million level. The midpoint of our Q2 guidance is slightly below that baseline because of some isolated softness in a couple of areas, namely in our silicon carbide gas panel business, which has slowed a bit as the industry digests the capacity installed over the past few years as well as a slower-than-expected EUV system build rate through mid-year, given certain order delays and leading-edge logic. We remain optimistic for an improvement in the second-half revenue volumes as the demand profile begins to build in advance of a stronger 2025 spending environment. That being said, our visibility remains limited to approximately three months, given the return to normalized lead times in the supply chain. And with our current visibility, we are not yet seeing a meaningful uptick in demand for new systems serving the NAND market. The recovery in this market remains in the very early stages, and recent reports indicate that the improvement year to date is chiefly focused on technology upgrades. Given the strong etch and deposition intensity characteristic of the NAND market, we look forward to a more meaningful improvement in NAND demand driving a strong growth year for us in 2025. In other semiconductor end markets, the emergence of new technology drivers and process inflections such as gate all around and high bandwidth memory require an increasing use of applications that are highly dependent on the accuracy and repeatability of the fluid delivery systems. These include applications such as selective etch, ALD, deep silicon etch, ECD, and more. We have a role providing fluid delivery to all of these applications. And while the expected pace of EUV deployments has resulted in a current slowing in the build rate for 2024, as we move into 2025, we expect a significant increase in gas delivery deployment for Litho as well. Outside of semiconductors, specifically for our IMG business, we are also seeing improvement in the overall demand forecast as well as incremental share gains ahead within IMG's customer base in aerospace and defense, as well as certain commercial markets. As each of these markets and applications continue to expand, we see opportunities for I-Corps to increase our revenue potential and continue to add breadth and diversification to our customer base. All of these factors build a strong story for I-Corps' revenue growth as the industry recovery accelerates. But it's our proprietary products, including our next generation gas panel, that we are most excited about. as our key initiative to drive overall gross margin expansion within our business. And this period of muted demand has enabled us to make steady progress penetrating our new products into the market. I'm pleased to report that we recorded our first revenue on some of our initial shipments of next-generation gas panels during Q1. By mid-year, we will have over 20 next-generation gas panels shipped and installed in the field, with most supporting our customers' evaluation tools that have shipped to device manufacturers. Our new gas panel contains about 80% proprietary I-Core content compared to around 10% today, which will drive significant expansion of our gross margin profile. These tool evaluations typically take about nine months to complete, so the earliest these will be completed and production shipments can begin is the fourth quarter for the initial shipments. We have been qualified on three applications and are now expecting to complete a fourth application qualification by mid-year and have four active customer engagements. Our strategy to expand overall proprietary I-Corps content extends to our components businesses as well. We are now customer qualified on fittings that are used in our weldment business, substrates used in our gas panel, as well as seals and valves. These are all critical components used in the existing gas panels that we assemble. All of these component qualifications can be deployed to our existing gas panels that we build today, as well as being designed into our next generation gas panel. These specific products are now qualified at three customers and began shipping in the second half of the first quarter. We expect our proprietary component content will continue to increase within our build-to-print gas panel business over the next several quarters. These applications have significant opportunities to drive margin accretion as we further integrate them into our gas panel business. In summary, I'll remind everyone here today that our revenues tend to recover more sharply when industry spending rebounds. Furthermore, our business model and financial profile tend to generate significant operating leverage as revenues grow. Given the current industry expectations for WFE remaining relatively stable at these levels through 2024 in advance of a strong 2025, we also expect our revenue run rate to continue around the $200 million level until the beginning of a revenue ramp. We look forward to ramping revenues back towards the $250 million to $300 million plus level in 2025. We expect to be able to deliver significant earnings growth as revenue volumes increase, which is why we continue to make critical investments in our business in support of future growth. With that, I'll turn it over to Greg to recap our Q1 results and provide further details around our Q2 financial outlook. Greg?