Ichor Holdings

CBD, ECD, and clean steps. While we are not seeing an initial recovery in 3D NAND investments beyond technology transitions, we do expect NAND spending will further improve in 2025, which will benefit our business given the greater etch and deposition intensity for this application. Our silicon carbide gas panel business, which has slowed heading into the second half, is expected to return as a growth driver in 2025 to support the additional capacity that will need to be put in place in the next few years. And while the more modest pace of EUV deployments has slowed our quarterly build rate of gas delivery systems for the first half of this year, we expect the second half to be stronger and continue to grow as we move into 2025, another tailwind to our growth. Finally, in our non-semi business, we are seeing a return to pre-downturn demand levels 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, altogether building a strong story for I-Corps' revenue growth as the industry recovery accelerates. Given all of these drivers, we believe we could see strong growth for our primary served markets with NWFE through the next up cycle. In particular, deposition, etch, and EUV, as well as in our non-semi business. Now I'd like to update you on our proprietary products pipeline, including our next generation gas panel. We continue to make steady progress in growing our new products this year and are seeing the impact on our profitability with improved gross margins on similar revenue levels. I'll start with our next generation gas panel. We have now shipped over 20 gas panels, which is consistent with the outlook I provided on our last earnings call. Most of these new gas panels are on our customers' evaluations tools that have been shipped to a device manufacturer. Our new gas panels contain about 80% proprietary I-Corps 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 the initial evaluation will be completed and production shipments can begin remains in the fourth quarter. We have been qualified on three applications and are now expecting to complete two additional applications in the next three to four months. As for our new components products, we are now qualified on fittings, that are used in our weldment business, substrates used in our gas panels, seals, and high purity valves. These are all critical components used in the existing gas panels that we assemble. These specific products are now qualified at three customers and have continued to ramp since we began shipping in the second half of the first quarter. All of these new component qualifications can be used in both our existing gas panels that we build today as well as are all designed into our next generation gas panel. 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. In contrast to last quarter, When any meaningful uptick in revenue growth was outside of our three-month visibility, today we are pleased to report that a return to sequential growth is now firmly within our near-term forecast. Our confidence has increased around the stronger second half largely due to the recent strengthening of the Q4 demand profile. We are encouraged by the strengthening outlook for Q4 as we move into what is expected to be a much stronger WFE year in 2025. which means we look forward to ramping revenues back towards the $250 to $300 million plus level next year. 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 the call over to Greg to recap our Q2 results and provide further details around our Q3 financial outlook. Greg.

Thanks, Jeff. To begin, I would like to emphasize that the P&L metrics discussed today are non-GAAP measures. These measures exclude the impact of share-based compensation, amortization of acquired intangible assets, non-recurring charges, and discrete tax items and adjustments. There is a useful financial supplement available in the investor section of our website that summarizes our GAAP and non-GAAP financial results. as well as a summary of the balance sheet and cash flow information for the last several quarters. Second quarter revenues were near the upper end of our forecast at $203 million, up slightly from Q1, and 10% higher than the same period last year. Gross margin improved 80 basis points sequentially to 13%, which was in line with expectations. we are starting to recognize the benefit of our internally produced products, as well as continued improvement in factory efficiencies. Q2 operating expenses came in below forecast at $21.9 million, a little lower than Q1, due to favorable labor-related costs and continued efforts to control variable spending. Our operating income for Q2 was $4.5 million. Our net interest expense of $1.9 million was down significantly from the Q1 expense of $4.1 million, reflecting the benefit of our $115 million debt reduction during Q1. Our non-GAAP net income tax expense was above our forecast at $800,000, which had a one-cent impact on our EPS within the quarter. The resulting net income per share was five cents. Now turning to the balance sheet, at the end of the quarter, our cash and equivalents totaled $114 million, a $12 million increase from Q1. We generated $17.5 million in cash flow from operations, and after deducting $2.8 million of capital expenditures, our free cash flow was $14.6 million. Accounts receivable decreased from the previous quarter on improved linearity, and DSOs were 29 days. Inventory decreased $9 million during the quarter to end the quarter at $231 million, and inventory turns increased to 3.0. During the quarter, we reduced our term loan balance by $1.9 million to end the quarter with a total debt of $130 million, and our net debt coverage ratio improved to 1.8 times. Now I'll provide our guidance for the third quarter of 2024. With anticipated revenues in the range of $195 to $210 million, we expect our Q3 gross margins will again improve sequentially to a range of 13.5 to 14.5 percent. We expect Q3 operating expenses to be approximately $22.6 million, up from our Q2 level of $21.9 million. We expect OpEx to remain at a similar level for the fourth quarter. Net interest expense for Q3 is expected to decline to approximately $1.6 million, and we expect it to remain at this level for Q4. We expect to record a tax expense in Q3 of $800,000. For the full year, we are forecasting a slightly higher non-GAAP effective tax expense of $3.2 million. Beyond this year, As you update your models for 2025 and beyond, the assumed effective tax rate should be in the range of 10 to 15%. Finally, our EPS guidance range for Q3 of 5 to 15 cents reflects a share count of 34.3 million shares. Operator, we are ready to take questions. Please open the line.

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