Ichor Holdings

FAB equipment demand, principally a higher mix of etch and deposition. You may recall that our visibility for growth and an inflection point in our revenue run rate improved significantly between our Q2 and Q3 earnings calls. While the debate over WFE growth in 2025 intensified, we were talking about the beginning of an upgrade investment cycle for NAN, We were talking about an increase in etch and deposition intensity, boosted in large part by the additional process steps required by advanced logic devices migrating to gate-all-around architectures. We also talked about how the expected slowdown in WFE spending in China was a favorable makeshift, setting up a strong environment for the US OEMs to outperform overall WFE. And while the evolving WFE demand environment did in fact result in lower quarterly build rates for our litho and silicon carbide businesses as we move through 2024, we also talked about how our participation in advanced packaging and high bandwidth memory through our chemical delivery business has largely offset these pockets of weakening demand. As we indicated by webcast in January, We believe this inflection point in our revenues is not a one or two quarter phenomenon. We are investing appropriately for the growth ahead. In fact, demand has continued to strengthen quarter to date, and we are very pleased today to be raising the high end of the range of our revenue forecast for Q1. As we have gained clarity into the various margin impacts for Q1, we can also increase our gross margin outlook for the quarter and even more importantly, for the full year. We expect continued gross margin improvement throughout 2025, given our visibility for continued strong customer demand and increasing content from proprietary components. We believe the company can generate flow through of 25 to 30% or more, enabling us to deliver gross margins in the 15 to 16% range by Q2 and exceeding 16% for 2025, even on modest revenue gains beyond Q1. Which brings me to an update on our progress qualifying both our proprietary components for our existing gas panels as well as our next generation gas panel. We have made steady progress in closing additional component qualifications over the past quarter and will be cutting these components into our manufacturing pipeline in Q1. We expect growth in our new products this year will be a key driver for margin expansion for I-Corps in 2025. I'll start with our new component products. We are very pleased to announce today that our high purity valves were qualified at a second customer during Q4, and we are currently progressing through qualification at a third customer. We continue to make progress qualifying our proprietary fittings which are components used in our weldment business. With our two largest customers already qualified, we are in the final stages of our third qualification. All three of our process tool customers have already qualified our substrates used in our gas panels. These are all critical components used in the existing gas panels that we assemble, as well as our next generation gas panel. These components will continue to ramp in volume as we cut them into our manufacturing pipeline. Now moving to our next generation gas panel. As discussed last quarter, we delivered more than 50 of our next generation gas panels during 2024. We achieved initial customer or OEM qualifications on four applications last year, and many of the next generation panels that we delivered in 2024 are part of a qualification process with the end device manufacturer, which are continuing into 2025. The timing of these qualifications is being worked between our customer and their customer. And in 2025, we expect additional qualifications to follow. We are also now engaged on two additional applications beyond the four we discussed previously. The key takeaway as it relates to our proprietary content strategy is that we expect to supply an increasing proportion of our bill of materials with internally developed products. whether they are passive components that we no longer have to purchase for build-to-print gas panels, all the way up to our fully proprietary next-generation gas panel. While these internally developed and manufactured products have required a meaningful investment by I-Corps, most of the incremental R&D investments are behind us, and our labor force is now in place to address higher levels of customer demand and accelerate our gross margin expansion strategies as we move through 2025. To summarize, our expectations of industry spending dynamics, the mix shifts of investment priorities in the coming year are, on all, very positive for I-Corps' business. And regardless of the magnitude of WFE growth expected for 2025, we are confident in our ability to outperform the growth in WFE this year. Likewise, we are confident in our ability to demonstrate strong flow through and deliver continued expansion of our gross margin profile as we enjoy a more robust customer demand environment while steadily incorporating an increasing share of proprietary products into our production flow. With that, I'll turn it over to Greg to recap our Q4 results and provide further details around our financial outlook.

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 Investors 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. Fourth quarter revenues were $233 million, aligning with the upper end of guidance. This represents a 10% increase from the previous quarter and a 15% increase year over year. Gross margin declined to 12%, which was lower than our expectations by about 300 basis points. This decline was primarily due to the higher level of direct manufacturing labor costs we added during the quarter to support the higher demand level in the back half of the fourth quarter and the first quarter of 2025 that we were not able to fully absorb within the quarter. Additionally, we experienced higher than anticipated inventory charges associated with our year-end physical inventory procedures, as well as unfavorable product mix. with the majority of the current revenue upside taking place in our built-to-print gas panel integration business. Operating expenses for Q4 were slightly below forecast at $22.3 million. Net interest expense was $1.7 million, while non-GAAP net income tax expense exceeded our forecast at $900,000. The resulting net income per share was 8 cents. Now turning to the balance sheet. Cash and equivalents at the end of the quarter totaled $109 million, an $8 million decrease from Q3. While our Q4 P&L generated over $8 million of positive cash flow, our net investment in working capital during Q4 was $11 million, primarily in inventory, given the revenue growth inflection in Q4. After $4.4 million of capital expenditures, Free cash flow for the quarter was a use of $6.9 million. DSOs for the quarter were slightly lower than Q3 at 34 days, and inventory turns increased from 3.1 to 3.4. We reduced debt by $1.9 million during Q4, bringing our year-end balance of total debt outstanding to $129 million, down from $250 million a year ago. Our net debt coverage ratio has declined to 1.6 times, down from 3.4 times a year ago. Now let us discuss our guidance for the first quarter of 2025. As Jeff mentioned, today we are increasing the high end of our preliminary outlook discussed in early January. With anticipated revenues in the range of $235 to $255 million, we expect gross margin in the range of 14 to 15%. At the midpoint of the range, or $245 million in revenue and 14.5% gross margin, this equates to roughly 25% flow-through from our Q3 baseline, less about $1.5 million of residual impact, ramping and training of our incremental machining headcount. Once these incremental cost headwinds are behind us, we anticipate returning to gross margins above 15% by the second quarter, and flow through in the 25 to 30% range. Q1 operating expenses are projected to be approximately $23.5 million, reflecting the seasonal impact of payroll taxes resetting, audit fees, and other variable compensation costs. Given that we expect to remain at similar levels beyond Q1, today we are also lowering our expected OPEX increase for the full year to an anticipated 5 to 7 percent compared to fiscal 2024. Net interest expense for Q1 is expected to be approximately $1.6 million, and we expect this level to be relatively consistent through 2025, given recent announcements around a slowing of rate decreases this year. For modeling purposes, net interest expense for 2025 should be approximately $6 million. Our expected non-GAAP effective tax rate for 2025 is projected to be approximately 12.5%. For Q1 specifically, our EPS range of 20 to 32 cents reflects our expectation for 34.4 million in diluted shares outstanding. Operator, we are ready to take questions. Please open the line.

Thank you. We'll now be conducting a Q&A session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from the line of Craig Ellis with B Reilly Securities. Please proceed.

Yeah, thanks for taking the questions and congratulations on the momentum that you're seeing in the business, guys. I'll start with Greg and then move on with one for Jeff. So, Greg, if gross margins in calendar 25 are going to be above 16%, which would be a 330 basis point increase year on year, Can you just help us understand how much of that is a benefit from the new product progress that's being made, valves, gas panels, et cetera, volume versus the absence of some of the headwinds that might have been in play in 2024, like the inventory charges and some of the volume-related cost ramp-ups?

Hi, Craig. Okay, so let's see if I could get to all your points there. You asked quite a bit. To get to the, you know, we said the 16% by the end of the year for the full year, you know, the headwinds will go away. As we said, those will exit Q2, right? So those won't materialize as we get through Q2. uh, branded products, right. That's going to continue on the 25 to 30%. Uh, improvement on the flow through, uh, from a, from a incremental standpoint, then, um, you know, as we get into the second half, as we get stronger, that will benefit as well. So the tailwinds will go away. That'll benefit us exiting the headwind. Sorry. tail uh headwinds uh q2 the internal branded products will continue to benefit through uh through the rest of the year and then as as we uh you know get through the second half um you know we expect those to be in the the 15 to 16 percent and stronger in q4 and craig i would tell you it's similar to it's jeff sorry

Similar to what we've talked about in the past, I'd say, you know, obviously some of the excursions that we have won't repeat. But really the new products are probably the largest driver. And then, you know, given that we're seeing, you know, volumes up year over year, then we get kind of the leverage of the core business excluding some of the new stuff. And so that is how we'll do it. And obviously you'll see these margins accrete as we go through the year because of this and how they layer in?

That's helpful. Yeah, so I would just infer from that that we've got maybe 45% of the benefit on products, 35% on volume, and 20% from the absence of some of the headwinds we had last year. That's real helpful, guys. And then the second question was for you, Jeff. It's great to see some confidence in demand being shown by just the build intensity quarter to date and what you're doing with the high end of the range. As you look at calendar 25 for I-Corps and think about the growth in the business, how would you force rank 3D NAND and its transition spend versus DRAM and high bandwidth memory versus gate all around and foundry?

I think that's a good question, Craig. I mean, obviously, I think we see foundry logic remaining pretty strong. I think, you know, you've heard TSMC's outlook, things like that. We don't see that going backwards. I think with GATE all around, I think that might see some increase. DRAM, our view today is it's going to stay pretty steady and strong. So really, you know, maybe the inflection that we're seeing to some degree is really wrapped around some of the NAND increases. that we're seeing in the beginning of the year for sure.

Yeah, and that would track with some of the things we heard last week too.

Yeah.

Yeah. OK, guys, that's really helpful. Thank you very much. I'll get back in the queue.

Thank you.

Thank you. Our next question comes from the line Brian Chin with Stifel. Please proceed.

Hi there. Good afternoon. Thanks for letting us ask a few questions. Um, yeah, maybe firstly in terms of, it sounds like you're Jeff, you're talking about at the moment, revenue levels kind of staying at sort of the Q1 level, maybe through the balance of the year. And so one, I want to clarify that sort of the impression you're giving because, and then kind of secondly, You did pull forward those direct labor costs, which sort of suggests that you expect business maybe even to pick up. And so are you being sort of conservative in terms of that stabilization outlook? And is what you're really doing kind of putting more and higher levels of responsiveness into the business by prepping some of these costs now?

Obviously, I think the way to think about it is demand strengthened in the quarter. Um, we needed to add resources because we see this staying pretty sustained in the first half with a modest, I would say at this stage, you know, our view of the second half is up modestly. So we're comfortable adding the resources in. Um, I don't think it, the thing that you guys can see is we talk about internal supply. That's a whole nother demand driver that I would tell you is outgrowing. the rest of the revenue in the company as we start to cut these things in. So that is largely where a lot of these resources needed to get into as we completed some of the qualifications, you know, we needed to get in front of inventory builds and some of the demand for that. So I don't know if I answered your question entirely, but I think for us we see, you know, we're not guiding Q2, but we see it pretty similar today to Q1 with a modest increase in the second half.

Some of that ties into the internal sourcing for some of the qualifications on existing gas panels.

Certainly, from a resource perspective, a fair bit of it, actually. In the second half, like we talked about, we see foundry logic pretty strong through the year, DRAM pretty stable through the year. But remember, our litho business has been down. We see that coming back towards the second half. Silicon carbide, for example, has been pretty muted since the first half of 24. We see that starting to materialize again towards the second half. So there's other things and share gains we've earned this year that'll help us in the back half of the year.

Okay. And this is a little tricky, but if you did see upside materialize from etch and deposition, and let's say it's on more legacy gas panel designs, How are you thinking about that impact on sort of the sequential gross margin progression through the year? Or do you think some of these, some of your other margin initiatives can sort of help to balance that out as well as maybe seeing improvement in machine component business as well?

Yeah, what I would tell you is that if our mix goes heavier to gas panels, which I think is your question, if there's more upside to that than some of the other stuff, it would have a bit of a muting on the percentage of gross margin. Having said that, we're starting to get to the stage where we're utilizing our overheads and all that much more efficiently, because we do have capacity in place that can support numbers well above this, right from the 22 timeframe that we were marching towards. I don't think it'll be as big of an issue as we've seen this year because we were still trying to qualify. We hadn't got our internal supply really going too strongly. And now as we turn this corner, I'm pretty happy with where we've gotten to on that. So that should help us add a tailwind to the margin that would offset any of those product mix issues.

Okay, great. Thank you.

You bet.

Thank you. Our next question comes from the line of Charles C. with Needham and Company. Please proceed.

Charles? Charles, your line may be muted on your end. Right, I think we may have lost Charles here.

I'll go on to the next question. Our next question comes from the line of Chris Sankar with TD Cowen. Please proceed.

Yeah, hi, thanks for taking my question. I told them, first one, Jeff, you know, last quarter you were very bullish on NAND recovering. I'm kind of curious how to think about your NAND shipments in December versus September. How do you think about it in March versus December and the cadence for the rest of the year?

I would tell you that, well, one is it wasn't a huge part of our revenue. Obviously, we're starting off a pretty low base and it's growing, but it was a pretty healthy uptick in the fourth quarter, a reasonably similar level into the first quarter, which I would expect would probably continue into the second quarter today. I would tell you that visibility for us now is probably, you know, gone from three months really strong to four, four, maybe five. So that's kind of how I would call it at this stage, given our visibility.

Got it. Got it. Okay. That's helpful. And then, you know, when I look at your European semi-cap customers, obviously you have two large ones. One is the little, one is the Epi. I'm kind of curious on the Epi customer in Europe, How are you seeing the revenues trend? Because I remember that was one of the fastest growing. Do you think they could be a third largest or a 10% plus customer this year, or do you think it's still small?

I think they're not going to crest 10%. I would tell you that they've done a terrific job. We've expanded our share beyond Epi, which has helped us kind of grow market share in that particular customer. And so, but I don't think it'll crest, but we do see it growing nicely in 2025 from 2024.

Got you. And then just one final question for Greg. I think the question came up earlier. I was just trying to figure out, can you just say last year to this year, what is exactly, how many basis points improvement in gross margin is coming from the proprietary gas panels?

That's giving up a lot of information.

Let's just say it's a pretty large component of the gross margin accretion. Obviously, volume helps us year over year and just not having some of these excursions that we incurred in 2024. But I would say it's probably one of the largest of our accretion activities that we have year over year.

Gotcha. All right. Thanks, Jeff. Thanks, Dave.

You bet.

Thank you. Our next question comes from the line of Tom Diffley with DA Davidson. Please proceed.

Yeah, good afternoon. Thank you for a few questions. So, Jeff, you know, most people now expect the WC market to grow kind of mid-single digits this year. Your large OEM customers, because they're more etch-and-depth related or growing above that. At this point, can you say whether or not you believe you'll grow faster than your OEN customers?

I would say obviously we think Devin, as you indicated, is going to outgrow Total WFE. And I think as we look at our customers, based on what you guys see, I won't talk specifically other than some of the analyst estimates is that they will outgrow it. And we think we can outgrow that just a bit more.

Yeah, okay, that's helpful. And then when people are talking about the NAND market, how NAND is recovering this year, and that's great news, but you maybe put into perspective where NAND is versus the other markets, and how maybe over the next couple years, there's quite a bit more growth than just this year left in NAND?

Yeah, I mean, like... I guess when we look at what we're doing as a company, we're kind of seeing it go from 5-ish percent of our revenue to about 7% of our revenue, which is actually sizable as our revenue grows, too. But it's still not getting to the size of what we think DRAM will be, and certainly not Foundry Logic. But we think for the last couple of years, memory has been about 25%, DRAM and NAND. We see that getting larger this year as a percentage of our revenue, certainly.

And then maybe a quick one for Greg as well. When you look at the cost that you've layered in, the extra employees you've layered in over the last couple of months, and right now you have revenue maybe going up to 255 in the first quarter. What is the revenue capabilities of your current infrastructure?

How much revenue?

With your current installed base of both employees and physical footprint, how much revenue could you process at this point without meaningful additions?

From a facility point of view, clean rooms, all that capacity, well north of 400 right and today we try and mirror our headcount being added as close to the demand profile what you guys see is external revenue we have a view of what we're cutting in and components and stuff that adds to that but we're still I would say well below that for 400 plus capacity so it's really people dependent right now I would say once we add the bulk of the resources that we're seeing in Q1. And if we have a modest back half, it will be very little incremental people. We can probably do it with overtime and things like that.

All right, maybe one last quick question. Do you have any components that you've processed flying around in space right now?

Yes, of course. We do, obviously. We have some business with SpaceX, and so... most of what we build for them goes up and doesn't come back.

All right.

Thank you, guys. You bet. Thanks for asking.

Thank you. Our next question comes from the line of Christian Schwab with the Craig Hallam Group. Please proceed.

Great. Thanks. Most of my questions have been answered. I just have a question on gross margins clarity. Did you guys talk about gross margins being greater than 16% as you exited the year, or did you say that gross margin would be greater than 16% for calendar 25? I don't know if I heard that right.

I think we've kind of, well, so exiting the year on a run rate north of 16%, Christian, and then full year at that 16%. you're at 16%.

And then what do you think, you know, you know, optimal gross margins with increased proprietary products are, you know, as maybe as we look to 26, if let's say WFP goes up again, you know, how good could gross margins get?

Well, what I would tell you is, that our model today is 19 to 20. And I think, you know, in general, the direction we're getting in communications is that 26 will be a stronger year than 2025 from a growth perspective. I would certainly think, given where we're at, cutting in, certainly our passive products are really making good progress. Even with those, I think we can get pretty close to that in 2026. if the quarterly run rates kind of get up enough over maybe 300 at least, because we need to have that to absorb some of our infrastructure.

Great. No other questions. Thank you.

You're back, Christian.

Thank you. Our next question comes from the line of Edward Yang with Oppenheimer. Please proceed.

Hi, Jeff. Hi, Greg. Thanks for taking my question. Just on your new products progress, the gas panel deliveries that you had in 24, I think you had specified at 50. Was that consistent with your expectation? I think last quarter you were targeting something around 55.

Yeah, I said more than 50. So, yeah, it was pretty much aligned. You always get a few movements here and there, but we came in just about where we thought we would be. Got it. Evaluations are active at device customers now, and so at that stage, our customers are managing that process. And unfortunately, we haven't had any close yet, but we're optimistic that those will happen in the early part of 2025, certainly in the first half.

Okay, so were these all still for qualifying, or did you have any commercial shipments?

I would say that as we're shipping to their customer evaluations, we would call them commercial shipments. I mean, they're designed, they're putting them on a tool. Maybe the first half of those or less or something were probably what you would call kind of evaluations at our customers that are putting them onto their tools for the first time. But once they make it to a customer, we kind of treat them like a commercial shipment. And I would tell you that the That is a much smaller component of our internally supplied components. That's a bigger number. So we're still in the early innings of the fully integrated new gas box.

Got it. And you commented on this in the January presentation, but do you still see no incremental impact from the export controls? And do you have any preliminary thoughts on tariffs?

Yeah, I was glad to see him delayed for 30 days on tariffs. The rules were, just to be clear, the rules were very, to me, ambiguous. Most of Mexico is where we would have felt that we have very little that we procure out of China anymore. So any inbound tariffs from China are de minimis for us. It's mostly around Mexico. Most of what we build there comes from the US. So we were not very clear yet. on what that is going to be. Having said that, I don't know where that will end up. I'm sure the rules will start to get more clarified. But it certainly moves into our cost plus gas box business. It gets passed forward. Okay. And then the other question was the China export. I think all that's been baked into our visibility that we have. There's been no other down take. Some customers have talked about the overall impact of their business, which has already been incorporated in any outlook we've provided.

Thanks a lot.

All right.

Thank you. There are no further questions at this time. I'd like to pass the call back over to Jeff Anderson for closing remarks.

I want to thank you for joining us on our call this afternoon. I'd like to thank our employees, suppliers, customers, and investors for their ongoing dedication and support. We look forward to our next quarterly update in early May for our Q1 earnings call. In the meantime, feel free to reach out to Claire directly if you'd like to follow up with us. Operator, that concludes our call.

This concludes today's session. teleconference you may disconnect your lines at this time.

Thank you for your participation.