Ichor Holdings

Good afternoon and thank you for joining today's first quarter 2025 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 10k for fiscal year 2024, and those described in subsequent filings with the FDC. You should consider all forward-looking statements in light of those and other risks and uncertainties. Additionally, we will be providing 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 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 White, 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 everyone to our Q1 earnings call. Thanks for joining us today. First quarter revenues came in right around the midpoint of our expectations reflecting that the overall customer demand environment has remained relatively consistent since our last earnings call. To date there has been little change to the expectation that 2025 will be a modest growth year for wafer fab equipment or WFE and our Q1 revenues were up 5% sequentially from Q4 and grew 21% over the same period last year. Given our visibility today we continue to expect our revenue growth this year will outperform overall WFE growth in 2025. On the gross margin side first of all let me say that we fully acknowledge that our track record guiding expected improvements in gross margin has been impacted by excursions one too many times at this point. In evaluating our results for the first quarter we too found it challenging to fully understand why our increasing momentum in integrating internally sourced components has not resulted in more meaningful improvement to our gross margin profile. The best way to capture the lower than expected flow through and our Q1 gross margin performance is best summed up as growing pain. Once our internal supply is fully up to speed we will see the benefits of the new product wins through the P&L. Our strategy is working, the qualifications are continuing, and the impact will materialize as we progress forward. In Q1 our strategy did not materialize into the margin flow through we anticipated essentially because we ended up purchasing far more external supply than we had forecast. So why did that happen? As internally sourced products become a more significant portion of our bill of materials we must improve our processes for the management of the inventory levels needed prior to inserting these components into our manufacturing pipeline. In the first quarter the impact of the slower inventory build in the fourth quarter combined with other machine components ramping at the same time resulted in the need to buy more external supply in order to fulfill our gas panel deliveries in the early part of the quarter. Why this resulted in low 20s gross margin flow through well below expectations is because our strategy is to share a portion of the component cost savings with our customers and therefore when we purchase more external supply instead of using our own components the expected flow through didn't materialize. This impact accounts for about two-thirds of our gross margin miss in Q1. Most of the remainder of the gross margin impacts came in our -semi-business where we were awarded a new contract in the commercial space market that began shipment in the quarter. As we move from pilot to production it was determined that a redesign some aspect of the part was required and this resulted in a push out of revenue as well as occurring higher costs than expected with these initial deliveries. And lastly during the quarter we made the decision to exit our refurbishment business in Scotland. As a demand for product we were licensed to refurbish, declined to a level too low to sustain the operation and exiting this business had a slight impact on both revenue and gross margin in Q1. As we look ahead we have identified what has made an accurate prediction of our gross margin such a challenge over the last several quarters and as we build in the processes that better gauge both the pricing and the cost sides of the equation we are confident you will see a longer term trend developing and how we demonstrate progress towards our gross margin targets. Which brings me to an update on progress in qualifying our proprietary product which are chiefly comprised of certain components used in our existing gas panel business as well as our next generation gas panel. We achieved a significant number of new component qualifications in 2024 and we expect these qualifications to convert into more meaningful internal supply within our gas panel business as we progress through 2025. As stated previously the increased use of our proprietary internally sourced components is a key driver to our strategies for gross margin expansion. While 2024 marked a successful year for qualification our work continues. As stated before three of our major process tool customers have already qualified our substrate which are incorporated into our gas panel. Today we are pleased to announce a fourth customer will incorporate our substrates into their next generation products as they transition to service mount technology. This same customer will also be incorporating our valve products upon successful qualification later this year. Last quarter we announced the second customer qualification for valve product line. We expect to complete valve qualifications for a third customer this summer as well as the fourth substrate customer just missed anticipated by year end. For fittings we announced two customer qualifications in 2024 and a third customer qualification remains in the final stages today. We likewise are progressing on a fourth qualification for our fittings product in the second half. The key takeaway of our component qualification progress is that by the end of 2025 we expect to have all four of our largest customers qualified on all three of our major product families valves fittings and substrates which will a significant milestone for our business. Additionally we have several exciting new products under development scheduled for later release this year enabling us to expand our share of the addressable market of our components. Now I'd like to discuss the outlook we are providing today given the complexities of recent tariff announcements. In general today we are steel and aluminum section 232 tariffs for certain inbound material to the U.S. Our Mexico machining business falls under the U.S. MTA exemption as of today. We are working with our suppliers and customers to mitigate and or pass on the cost of these tariffs but there could be some transitory impacts on our gross margin as we work through the processes and customer discussions to incorporate the additional costs of tariffs and their relative impact on total supply chain costs. The final decisions on the semiconductor export controls and tariffs are expected to be issued early this summer. Obviously there is a large range of outcomes but we will not speculate on the outcome today. As we look at our revenue guidance for the second quarter of between 225 and 245 million dollars this is about 10 million dollars lower than what our visibility indicated a quarter ago. The lower forecast is not attributable to one particular change in demand but rather several small factors. For example one customer forecast was recently affected when a domestic device manufacturer began to slow their WFE purchases in advance of understanding the broader implications of various tariff policy. At the same time the delivery timelines within lithography and advanced packaging have seen some shifting to the right while silicon carbide applications have weakened further. This appears to be affecting each of our OEM customers differently depending on customer and end market exposure and there's absolutely no question that our primary markets of leading edge foundry and high bandwidth memory as well as technology upgrades for NAND continue to move forward on schedule. We have not further handicapped our Q2 revenue guidance to account for additional adverse demand impact that could result from the tariff policy other than what our customers have already incorporated into our visibility. Our visibility is somewhat shorter in duration than where we were on our last earnings call meaning at this time we have a good feel for the first half but less confidence in exactly how the second half will shake out. At this time we think our business in 2025 should be relatively even weighted first half to second half but I will remind everyone that this is the visibility we have today. Before turning the call over to Greg a few last comments about gross margin first I want to provide a bit more context as to the level of proprietary content we expect to achieve this year. As a reminder prior to stepping up our R&D investment and launching our new product about 90 percent of the bill of materials for our gas panels was sourced externally. In 2024 we were able to shrink that by about five percent. In 2025 we believe we can make further progress towards reducing external supply down to approximately 75 percent of the bill of materials. This is meaningful progress but there is still much more progress to be made. The most leverage will eventually come from increasing penetration of our next generation gas panel which has roughly 30 percent external parts and 70 percent internal. These gas panels incorporate our proprietary flow control technology. Many of the next generation gas panels delivered today are currently undergoing qualification with end device manufacturers. These qualifications are particularly important as they represent the first end user qualifications for our proprietary flow control technology which constitutes the largest portion of our bill of materials and carries the longest qualification cycle another critical milestone for I-Corps. It is not realistic to think that we will be able to move 100 percent of our gas panels to the I-Corps proprietary version but we expect to continue to make incremental progress. The most immediate and impact you should see to our gross margin profile will be as we move from the roughly 15 percent proprietary content in 2024 towards around the 25 percent level in 2025. In Q1 we didn't achieve the flow through we anticipated due to purchasing far more external supplies than forecast but as our process is improved and we work through these growing pains we still expect to show incremental improvements to gross margin through each quarter of the year even on similar revenue level. In February we were confident that our gross margins for the full year would exceed 60 percent. Today we are backing off that absolute number which is currently prudent in response to the tariff uncertainties as well as the impact of the Q1 miss. With that said we currently expect our second half gross margin will be in the 15 to 16 percent range. With that I'll turn it over to Greg to recap our Q1 results and provide further details around our 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 on 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. First quarter revenues were $244.5 million near the midpoint of guidance and up 5 percent from Q4. The gross margin for the quarter was 12.4 percent, an increase of 40 basis points from Q4 but below our forecast of 14.5 percent. As Jeff discussed the gross margins were negatively affected by several factors, primarily the slower transition from externally supplied products to our internally manufactured products, as well as higher costs associated with the redesigned efforts of our commercial space contract and the decision to exit our refurbishment business in Scotland. Operating expenses came in at $23.7 million dollars in line with our expectations. Operating income for Q1 was $6.6 million dollars. Our net interest expense was $1.6 million dollars and our non-GAAP net income tax expense was below our forecast at $600,000. The resulting EPS was 12 cents per share. Turning to the balance sheet, our cash and equivalents totaled $109 million dollars at the end of the quarter, up slightly from year end. We generated $19 million dollars in cash flow from operations and after deducting $18.5 million dollars in capital expenditures, our free cash flow was $500,000. Our planned CAPEX investments for 2025 are expected to be above our historical average of 2 percent of revenue as we execute our global expansion of our machining and -semi-business capabilities. We estimate our 2025 CAPEX will be closer to 4 percent of revenue and be front half-weighted. Our total debt at quarter end was $127 million dollars and our net debt coverage ratio has now improved to just 1.5 times, well below any potential threshold for covenants. Now I'll discuss our guidance for the second quarter of 2025. With anticipated revenues in the range of $225 to $245 million dollars, we expect our Q2 gross margins will improve to a range of 12.5 to 14 percent. We expect Q2 operating expenses to be approximately $23.5 million dollars or roughly flat to Q1. We expect our OPEX run rate will moderate somewhat in the second half of the year, leading us to expect our -over-year increase in operating expenses to be somewhat lower than communicated previously and in the range of a 4 to 6 percent increase compared to 2024. Net interest expense for Q2 is expected to be approximately $1.5 million dollars. For modeling purposes, you should model net interest expense for the full year of 2025 to be approximately $6 million dollars. We expect to record a tax expense in Q2 of $800,000. For the full year, we are forecasting a non-GAAP effective tax rate of 12.5 percent. Finally, our EPS guidance range for Q2 of 10 to 22 cents reflects a share count of 34.4 million shares. Operator, we are ready to take questions. Please open the line.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we poll for questions. Our first question comes from Brian Chin with Stiefel. Please proceed with your question.

Afternoon. Let me just ask a few questions. Maybe the first one on the change in the revenue outlook for the year. Understanding what you said, Jeff, about a couple of different factors adding up there. If you try to isolate this on the four buckets of NAND, DRAM, advanced logic, and mature semi, which of these do you think is incrementally more cautious relative to your thinking 90 days ago for 2Q and maybe even second half visibility?

Yeah, I would actually think of it a little bit differently and I'll come back to the segments. I think the way you guys should think about this is edge and deposition for us are generally the same kind of outlook as we came in. I would say we're softer in our lithography business today. But more than half of this is coming out of our decision to exit Scotland. The softer non-semi business that we see not ramping as fast in the first half, which affects the whole year, and then silicon carbide. That's much, much softer almost to the point where most of it has shifted into 2026. From a depth and edge, it's stable. If you look at the half over half, it's really about $30 million. I would say more than half of that is kind of what I would call outside of our core depth and edge business. It's largely stayed the same, but like we said, we have these pockets that have softened up. If that helps. What I would tell you from a segment point of view is we see the same visibility from what we can tell that investment is continuing. The DRAM is strong around AI and others and Foundry Logic is relatively stable, maybe with the exception of one North America OEM that's rationalizing their capex.

Maybe we even one question follow up around gross margins and then the tariff, which is not fully quantifiable at this moment. In terms of the execution in Q1 on the gross margin internalization of some of those components, out of 100%, out of what you expected to execute, what percent did you actually execute on in terms of the internal sourcing? I know we're months into the second quarter, but how much progress have you already seen here to start the quarter to give you confidence that it's sort of back on a better trajectory?

Yeah, I would say I'm just trying to think. I mean, the shortfall, some of it started last quarter and materialized into this quarter. By the early part of the quarter, we knew we would have to buy some external supply because we couldn't get caught up versus what we exited last quarter. We were trying to. So probably say we got, believe it or not, maybe 75 or 80% of what we wanted out of there. Of the new stuff, weldments, fine. That's always been 10% of the gas box and that didn't have any hiccups in the quarter. So I think we still see some external purchases into our second quarter, which we've incorporated into our outlook. I think that the headcount we need to start to turn the corner and we have much better alignment between. Keep in mind, some of these parts that we manufacture, these are tens of thousands of parts of precision machine parts. So we had some disconnect between what we were able to get out of the factory and what we needed to buy. So I think from a confidence, I think there is still a little bit of a headwind that we've incorporated into the next quarter. And then we kind of talked about the second half of year being in that 15, 16, you're starting to see the flow through even on flat revenue levels increasing again. So you said on the call, I think the strategy is working. We're still kind of growing things and executing to get all of this aligned through our factories. And we have three large integration sites.

And I just just close out. I imagine when you have this sort of resource or increase a source to some of your suppliers, maybe it's not in the best terms in terms of that short window. But it sounds like overall the qualifications and the cut-ins are kind of progressing as you expect. It's just sort of

your

ability to catch up in an efficient way.

Yeah, Brian, that's a good point. I mean, I'd almost say that they were, they came out of the gate a little stronger than we were ready for. So I think they're progressing even as well as we thought and maybe a little bit better.

So, all right. Thank you.

Thank you.

And our next question comes from the line of Chris Senkar with TD Cowan. Please proceed with your question.

Yeah, thanks for the question. I have two of them, Jeff. First one, just to clarify the growth margin, you mentioned growing pain. Are you seeing any of your customers trying to push down the talent cost onto the suppliers like you or that is not being a factor yet?

I would say we're fortunate enough in my earlier comments that our factory in Mexico is exempt through the USMCA exemption. I'd say the 90-day exemption for semiconductors and capex has gotten most of ours covered. I think the area that we're most exposed at today is this section 232, which is really around steel. It really is our weldment business that ships back to the US. And so we're still working on that process to push that through pricing and things like that. So we, like we said, we might see some transitory. We're hoping that we can get all this stuff worked out between our customers and ourselves. I think our customers truly understand what's happened here. I think there's a pretty good collaboration at this point to help them and help us through this. So I think it's moving in the right direction.

Gotcha. And for some of your other customers, can you ship stuff from your Malaysia facility to mitigate the effect of tariffs? Or it doesn't work that the big customers are in the US? Or they also have facilities overseas?

Yeah, all of our customers have facilities overseas. I would say we have kind of a natural hedge that we could affect, depending on how the tariffs work out and pass through the cost of billing in the US versus Malaysia. They might be closer than you think between tariffs and no tariffs, but until there's kind of final agreements country by country, obviously, you know, we have one large customer that manufactures almost all of their systems now offshore. We can support them fully. And then one customer that probably builds, well, I won't say what percentage, but a very large proportion that we service out of Singapore. So I think, and our fourth largest customer is largely a Singapore-based operation too. So a little bit less of an impact for them.

Got it. And then final question, Jeff, I understand there's so many moving parts, the tariffs and the macro, but they're kind of implying -next-first, which is still a pretty healthy growth. You had over a year of like 13 persons, and in the past, I remember your visibility has been about four to five months. So I'm just kind of curious, we look into that. Is it fair to assume, where is the strength for you in calendar Q2, and your conviction on calendar Q2 coming from? Is it NAND upgrades? Is it leading edge? Any color on that?

Yeah, I mean, obviously we don't get all the sell through, but I would say NAND's still pretty strong. I'd say, obviously we can see DRAM strength. I'd say we could see that into the third quarter. I'd say our lithography business is probably troughing in the second quarter. So that'll kind of start, we believe, kind of start growing in the second half. Obviously, we have four large customers with kind of different outlooks. And so what I would tell you is, we're very closely mirrored to all of our process tool customers in what they're seeing out there. We do build ahead of when they revenue and things like that. But yeah, we still see the strength in Q2 around the depth and edge side, which is really driven by the investments and Foundry logic, NAND upgrades, and DRAM.

Thanks a lot, Jeff. Thank you.

Good question.

Thank you. And our next question comes from Charles Xi with Neenum & Company. Please proceed with your question.

Hi, good afternoon, Jeff and Greg. Obviously, I think you will get this question a lot if you haven't. Your largest customer is guiding to a softer second half of the year. Obviously, we don't know if they just want to be conservative or that's the true outlook that they are seeing. But it sounds like you're now anticipating maybe second half will be sloppish half of a half. What do you think would be the disconnect between what you see and what your largest customer is up with guiding everyone to in terms of the second half? Thank you.

Yeah, well, it's a good question. I mean, we did anticipate that we might get this. I would tell you that we're pretty mirrored with our customers and our customers all have different trajectories, front half, second half. What I would tell you is we believe the second quarter is the low point for us in our UV and lithography products. So that offset semi will get stronger in the second half. So we have natural kind of offsets for anything that they see in forecast. I won't comment specifically what we see from them, obviously. But I would tell you we don't see any significant disconnect front half to back half from what our customers are talking about in the marketplaces as well. And then the other thing I might point out, Charles, is that I don't know the exact percentages, but our largest customer and our second largest customer within a few percentage points. Okay. And so we have two really pretty large customers.

Yeah, yeah, got it. I got your point about the second and not being too far behind the number one. Yeah. So Jeff, maybe another question. I do want to come back to one thing you said regarding the purchase of external resource components. Was this something kind of really caught you off the guard, something really surprised you that your customer ended up, want more external stuff? Because I thought that this is something your customer has to qualify, even maybe your customer's customer need to qualify it that the conclusion was made a long time ago. But why this is happening and if any additional color you can provide us, because we do want to know whether this is a temporary step back or maybe we have to think it's going to be very, we need to think about different rate of adoption for your internal resource component. Thank you.

Yeah, actually, Charles, I think it's a good question and hopefully I can help add a lot of clarity here. One is I think the demand for our products and qualifications is in line, if not a time to our integration sites and that's where we had the challenges. So it's not from a demand point of view, it's really from the supply point of view. We don't have customers saying don't buy our stuff. Once we're qualified, we have, we can go fully and cut it in and use our supply. We can also use external supply, obviously, because we had to do that to fill in our gaps, but we do not have anyone dictating to us what we can or cannot use at this stage. So these are passive parts, so once they're qualified, we can use them across our product line. So that's not the problem. The problem was getting our supply up quick enough to cut in in advance of we made the decision at a pricing level, we share some of the benefits of insourcing with our customers and maintain a lot of the margin accretion internally and that had an effect as well is because then we didn't get our profit on the parts that we built and or we didn't get to absorb our factory overhead as well and that's the two primary pieces of the gross margin list.

Maybe Jeff, if I may, can I squeeze in one quick question? Maybe this is a clarification. On the press release, there's, you put the footnote to the gap, non-gap to gap reconciliation for the operating, maybe it's not operating, it's a total expenses about 1.5 million and the footnote says it represents severance costs associated with a global reduction in forced programs. I think I heard you only talking about exiting Scotland but the footnote sounds like it's not a restructuring just around Scotland but somewhere else as well. If you can clarify, that would be great. Thank you.

Hey Charles, this is Greg. I'll take that. So obviously we mentioned that we had made the decision to exit Scotland. That was the majority of that 1.5 million dollar severance cost that we took for those individuals impacted and so that was the majority of it. We did have some smaller reductions in the quarter but Scotland was by far the majority of that charge as we planned for those individuals to exit.

Thank you Greg. Thank you. Thank you Jeff.

Thanks Charles.

Thank you and our next question comes from Craig Ellis with B. Riley Securities. Please receive us your question.

Yeah, thanks for taking the question and at the risk of beating a dead horse I'll start with gross margins. So Jeff, you've provided a lot of color. I think what I'm missing is I just listened to a pretty full discussion of what's going on is where exactly the issue arose is that the company's inability to forecast the amount of supply it needs and get that on site so that it can do some initial work with the initial work and the second part of the question is what new monitoring steps have been put in place and how quickly or how regularly are things being monitored so that you on your dashboard have optics into what's going on and can confidently steer gross margins to guidance going forward?

Yeah, good question Craig. So the simple answer is yes. As we were forecasting this business we had the demand forecasted pretty clearly. The supply inbound and coming out of a machining operations is often complicated. We had other products at ramp that we had cut in front of other products and by the time we realized it we had to make the decision to buy some external because you know two-thirds of our business is still the gas panel integration business so we can't risk deliveries there. So yeah, we kind of didn't get our you know our I call it the gazentus and the gazautas lined up but this quarter what I would tell you is the level of detail of which I'm digging in and others on my team are digging in or trying to ensure alignment to demand. We're just going to go deeper into the organization so if it doesn't get to us I mean we could have done a better job of forecasting is the bottom line and we probably could have predicted some of this which would have probably manifested in a similar result but giving you guys some visibility to it. When I talked about quarter two Craig we also said there's still some headwinds that we're working through. They're much less significant and so the front half of the year has got a more muted gross margin and then for the full year obviously we won't get to the to the 16 percent we talked about on the last call just because you can't make up for lost time and and the margin stack.

And then just looking at revenues Jeff we've got a range for the current quarter. Can you just frame up what's different from the low end to the high end the range in terms of you know what you can see today what would it take for for revenues to come in at the low end what would need to happen for revenues to come in at the high end? Thank you.

Yeah the low end I think is things just start to shift to the right for whatever reason. Demand horizons start to shift. Customers want to push things out today but I'd say holding pretty well. To get to the high end you know it's just customers really shifting from quarter three probably into quarter two and starting to pull some stuff in a little bit and then you know you just we get a tremendous amount of demand moving between quarters in every quarter. So we try and range that kind of up 10 down 10 but I would say we're probably not going to get any significant new tariff news until early Q3 but that could have an effect which we have not incorporated.

Got it and then if I could sneak one in for Greg. Greg you gave some clear color on two QOPEX. As we look at the back half of the year should we expect it to be steady or how do things trend? Thank you.

Hi Greg. I think we said we would moderate it so we said last time we were saying five to seven percent so you know four to six percent. It will be down slightly but not materially in the second half as we've had some front-end loaded costs in Q1-Q2. So you can you can moderate it down a little bit but not significantly.

Thanks

guys.

Thanks Greg.

And our next question comes from Tom Diffley with EA Davidson. Please receive your question.

Yes good afternoon thank you. So Jeff I was curious as your view of the required manpower or you know the the actual yields of the internal source changed at all and has your long-term view of the incremental margins from this project changed at all?

I'll answer the easy question. The incremental margin in the long run has not changed. I think we still have to get down what I'd call the learning curve. I think the resources, the machinists are coming along pretty well. Keep in mind we also need assembly people and things like that and so a lot of this is centralized around our Minnesota operations and so the headcount is coming in pretty well and then that helps us offset some of the higher cost external resources that we use to start this ramp.

And is the long-term plan to regionalize this where you do this in every region or is it going to be a global operation?

We will and I think you know if you look our capex was pretty healthy in Q1. That's all largely around our kind of global expansion for what we see coming which the largest piece is going to be a machining operation in Malaysia. So we are going to in fact actually help a little bit if tariffs stick around permanently and things like that. So that facility is kind of a 2026 startup.

Okay great and then just as a follow-up Greg maybe is there somebody who can quantify the still aluminum tariff impact on you?

So to quantify it you know Tom we've looked at what we think you know it's going to be so right now it's about 15 percent of our inbound. It's really coming from Asia.

Yeah US.

US inbound right so Malaysia is kind of the largest piece of it but the steel side right now is let's see what did we say it's yeah and the 232 tariffs so that's the steel right so it's not significant you know Tom at this point because we've worked through ways to you know mitigate that you know through finding suppliers or diverting it to our not coming into the US. Also remember Mexico is not is exempt from that at this point.

Yeah and our largest weldment facility is Malaysia which is it dwarfs any of the capabilities and volume that we have in the US. The US does I would call more sophisticated weldment subassemblies and so we have to work that's the one that's getting us. 232 does not allow duty drawback either for our customers or for us if we do it so that's the one that is the biggest obstacle.

Okay that's helpful appreciate the time.

Thanks Tom.

And our next question comes to Edward from Edward Yang with Oppenheimer and Company.

Please receive the time. Jeff you mentioned the the court depth and edge outlook has not changed. What's your level of confidence that stays strong? You know you had a large OEM and process control postpone their analyst day and you know are there any historical parallels that you could draw on in terms of the current environment relative to the past that could kind of guide you in terms of forecasting?

It's not COVID that was the other direction. I think the uncertainty in the fact that people are being a little careful is really around the geopolitical uncertainty of what's going to happen once they make a final determination for semiconductors and semiconductor capital equipment and then the supply chain below it. I don't I mean you'd have to ask the other company why they they push something now but I mean today all I can do is tell you what I'm seeing. We do not see a demand erosion beyond the pockets that I talked about earlier in the call. We see we still have a clear message you know that 2026 is going to be a pretty strong year you know don't stop planning for that. We all have to wait out the final export control and tariff situation before we can make any final determinations on if that's going to lead to some level of demand reduction but right now I think most of us are just dealing with what we can see in front of us and by early summer I think we'll start to hear the next wave around semiconductors and whether they're going to continue to be exempt. Remember they're exempt in the one area we were really worried outside the U.S. China. China is still allowing the flow of equipment.

Got it and maybe a longer term question but with all this tariff and logistics uncertainty are your customers more open to outsourcing components and sub-assemblies?

I think the way I would think about that is we have a global footprint. We have some flexibility that can work with them but you have to go one step deeper which is where's the sourcing of the coming into the U.S. and that's what's getting us is not everything is U.S. Our -semi-business or IMG business we talk about they don't buy anything outside the U.S. We buy most of our base materials in the U.S. It's really the tubing and weldments that we're getting affected on so those have some ability to flex around over time but you would have to have a clear vision before you start making those moves.

Okay

thank you.

Thanks Ed.

Our next question comes from Christian Swobb with Craig Hull. Please receive your question.

Thanks guys it wasn't clear to me the size of the Scotland operations annual basis. Can you 23 and 24?

Yeah I would say I don't have it on the top of my head but I would say 23 was probably 20-ish little lighter and 24 got tremendously lighter towards the end of 24 and then in Q1 it just the demand dissipated. It's they did some legacy tool refurbishments under a license expired. They were not able to backfill in another business so I would say on the full year somewhere close to 10 million kind of came out of our horizon.

Great and then it wasn't clear to me you gave a lot of numbers of Brown Gross Martins but let's start with like where you started with 90% external components. What does that percentage need to go down to to drive your aspiration gross margin target of 19 to 20 percent?

I think by the end of 25 we'll be at about 25 internal 75 external. We'd have to get some proportion of the flow controller in there. To tell you the truth I'd probably be guessing Christian exactly how much but to get there we would have to have some reasonable level of either the full gas panel the new gas panel and or whether the flow control the next generation is really going to be backwards compatible and that's probably going to be a faster move but I don't know if I was to guess 40 or 50 million of that probably gets us pretty close to the 19%

okay great no other question on

the passive parts today okay well thank you

great. Thank you and with that there are no further questions at this time. I would now like to turn the floor back to Jeff Andresen for closing remarks.

I want to thank you for joining us on our call this quarter. I'd like to thank our employees, suppliers, customers, and investors for their ongoing dedication and support. Later this month we will be participating in the B Riley conference in LA, the Craig Hallam conference in Minneapolis, and the TD Cowan conference in New York. After that we will look forward to our next quarterly update in early August for our Q2 earnings call. In the meantime, please feel free to reach out to Claire directly if you'd like a follow-up with us. Thank you.