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.