Ichor Holdings

Good afternoon and thank you for joining today's fourth quarter and fiscal 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 10-K for fiscal year 2024, 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 Phil Barros, our CEO, and Greg Swite, our CFO. Phil 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 Phil Barros. Phil?

Thank you, Claire, and welcome everyone to our Q4 earnings call. As we enter 2026, there's a lot to be excited about. I-Corps is entering its next phase of growth with increased momentum and a clear strategy. Since we last spoke in November and again during our January webcast, customer demand in our primary serve markets has continued to strengthen. Our current visibility is that we are now operating in a sustained demand ramp. A ramp being driven by fundamental technology transitions and strategic capacity additions across our core markets. We're seeing increased adoption of gate all around architectures, accelerating growth in high bandwidth memory, and rising capital intensity in advanced logic and advanced packaging. These transitions increase etch and deposition intensity, and this is the segment of the market where I-Corps is most highly levered. Our objective is to win share through this cycle, and being highly responsive to our customer demand is a core aspect of meeting that objective. Ensuring adequate supply and supporting our customers' strong ramp has been my number one focus since taking over as CEO. As a result, we are ramping labor headcount in our integration business, and pre-positioning inventory to enable us to address our customers' accelerating demand with strong, predictable execution. In addition, our recent design wins in commercial space are beginning to translate into meaningful revenue. We expect these design wins to convert into revenue growth that could outpace our semiconductor growth this year. Based on current visibility, we see every quarter in 2026 as a growth quarter for I-Corps. Turning to our results. As provided in our January release, Q4 came in largely as expected. Revenue was $224 million above the midpoint of outlook. We finished fiscal 2025 with $948 million in revenue, up 12% year-over-year. This solid year-over-year growth was driven primarily by strength in etch and deposition and was partially offset by the softening build rates of EUV as well as decreased demand in certain trailing edge markets. Our commercial space business grew significantly in 2025. While still a small portion of our overall revenues, it has grown to the point where our fifth largest customer is now outside the semiconductor industry. Looking forward, we expect growth in nearly every application with nearly every customer as we progress through 2026. Our outlook has further strengthened since entering the year, and our guidance today is for first quarter revenues in the range of $240 to $260 million. At the midpoint, this equates to double-digit growth from our Q4 trough. Based on current visibility, we expect sequential growth every quarter of this year, leading to what we expect to be a strong growth year for I-Corps. During our January webcast, I introduced our key strategic initiatives for 2026, and I will now review the progress being made. First is our global footprint realignment. Over the past few quarters, our investments have been focused on expanding our Mexico machining capacity and building out our new manufacturing center in Malaysia, which is our largest facility in I-Corps history. The Mexico expansion will be complete later this year and Malaysia just began operation last month. These locations will be our high volume manufacturing centers for I-Corps branded products and will give us the capacity needed to meet the demand ramp we are now seeing. To enable this transition, we are in the process of relocating a portion of our machining assets to these critical sites, which will temporarily reduce our capacity for these components. While these transitions are important, they will not gait our ability to support our customer demand. The realignment of our global footprint touches all three of our strategic focus areas for 2026 and is aimed at strengthening our supply resiliency, ensuring business continuity, and bringing us closer to our customers. This realignment is also a key driver for us achieving our cost targets for I-Corps branded products. It will also structurally eliminate the primary sources of margin and rent challenges we faced in 2025. Beginning Q2, we expect gross profit dollars will grow around twice the rate of revenues as we move through the year. We expect our global footprint realignment to begin driving meaningful margin improvement by mid-year. This translates into significant earning leverage expected in the quarters ahead. Before closing, I want to touch on our product strategy and creating a differentiated I-Corps. 2026 is a milestone year for I-Corps. By year end, we expect to have products in place to enable us to reach our long-stated objective of having I-Corps branded products capable of supporting up to 75% of the content within the systems we make. Reaching this capability reflects our continued transition from an integration company to a product company and ultimately a key technology enabler for our industry. This level of vertical integration gives us the tools and technologies required to support our customers as they move into the angstrom era, where they are adding and removing material one molecule at a time. As our customers enter this era, our goal is for I-Corps to outperform by delivering technology, products, and execution required at this level of precision. With that, I will now hand over to Greg.

Thanks, Phil. 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. Fourth quarter revenues were $223.6 million above the midpoint of guidance, but modestly down from Q3. We believe Q4 represents the trough period during this cycle, with the recent softening in certain end markets and applications already showing signs of recovery. Gross margin for the quarter of 11.7% was 70 basis points above the midpoint of guidance, reflecting modestly better execution against the lower revenue volumes and unfavorable product mix during the quarter. Operating expenses for Q4 were slightly lower than forecast, at $23.4 million, and operating income was $2.7 million. As expected, our net interest expense for the quarter was $1.7 million, while our non-GAAP net income tax expense was slightly lower than forecast at $400,000. Our resulting earnings for the quarter were at the upper end of our expectations at one cent per share. Turning to the balance sheet, Our cash and equivalents totaled $98.3 million at the end of the quarter, a $6 million increase from Q3. Working capital improvements generated $9 million of positive cash flow, and after $3 million of capital expenditures, free cash flow for the quarter was $6 million. ESOs for the quarter were slightly better than Q3 at 29 days, and inventory turns remained constant at 3.3. Our year-end balance of total debt outstanding was $123 million, down from $129 million a year ago. Our net debt coverage ratio currently stands at 1.7. Now I will discuss our guidance for the first quarter of 2026. As Fel mentioned, our revenue outlook has strengthened year to date, with anticipated revenues in the range of $240 to $260 million we expect gross margins to be in the range of 12 to 13%. Q1 operating expenses are projected to be approximately $24 million, reflecting the seasonal impact of payroll adjustments, audit fees, and other variable compensation costs. We expect the strong revenue ramp ahead for 2026 will be supported by a relatively consistent OpEx run rate of $24 million which for the full year equates to an increase of about 5% compared to fiscal 2025. Net interest expense for Q1 is expected to be approximately $1.7 million, and we expect this level to be relatively consistent throughout 2026. For modeling purposes, net interest expense for 2026 should be approximately $7 million. we expect to record a Q1 tax expense of approximately $1.1 million. As you update your models for 2026, our assumed effective tax rate is currently expected to be in the range of 20 to 25%. The increase in our anticipated non-GAAP effective tax rate is attributed to the geographic distribution of our profits this year and the sunsetting of our Singapore pioneer status in early 2026. Finally, our EPS range for Q1 of $0.08 to $0.16 reflects our expectation for $35.1 million in diluted shares outstanding. Operator, we are now ready for questions. Please open the line.