ICHOR HOLDINGS, LTD. Q3 FY2024 earnings call

Key Messages - Jeff highlighted strong third quarter results with $211 million sales, above forecast, sequential improvement in gross margin and EPS of $0.12. - Visibility for semiconductor process equipment market recovery has strengthened, second half of 2024 expected to be 7%-10% stronger than first half in revenues. - Q4 expected to have gross margin flow-through of over 30% and 160% increase in operating income compared to first half of 2024. - 2024 full year has seen increased gross margins each quarter, R&D investments up ~15% compared to 2023, SG&A levels similar to 2023. - Proprietary component progress: fittings qualified at two customers, expected to complete third qualification in early 2025; substrates qualified at all three largest process tool customers; valves qualified at one customer and in qualification at two others. Next-generation gas panel: over 30 shipped, expect 25 more by end of year, contains ~80% proprietary content, 4 qualifications in Q3.

Third quarter revenues were $211 million, above the upper end of guidance, up 4% from Q2 and 7% higher than the same period last year. Gross margin improved 60 basis points sequentially to 13.6%. Q3 operating expenses were $22.4 million, slightly below forecast. Operating income for Q3 was $6.4 million. Cash and equivalents increased $2 million to $116 million in Q3. Cash flow from operations was $8 million. Accounts receivable increased, DSOs were 36 days. Inventory increased $8 million to $239 million, inventory turns increased to 3.1.

Guidance - Q4 revenues expected in range of $220 million to $235 million, Q4 gross margins expected to be 14.5%-15.5%. - 2025 expected to see at least 25% flow-through to gross margin from internally produced products and factory efficiencies on incremental revenue growth. - Q4 operating expenses expected to be ~$22.5 million. - 2025 expected to see 5%-10% increase in annual operating expenses as investing in proprietary products. - Q4 net interest expense expected to be $1.5 million, other expense $500,000. - 2025 net interest and other expenses forecasted at $6 million. - Q4 EPS guidance range $0.21 to $0.33 based on 34.2 million shares.

Risks - Forward-looking statements subject to number of risks and uncertainties beyond control, including those in earnings press release, annual report on Form 10-K for fiscal 2023 and subsequent SEC filings. - Foreign exchange losses and tax expense fluctuations can impact actual results.

Q: Craig Ellis asked about 2025 commentary on NAND and DRAM.

A: Jeff said DRAM is expected to be strong, NAND recovery starting, with some lag in components but seeing signs of NAND recovery.

Q: Brian Chin asked about NAND inventory and demand.

A: Jeff said no lag in gas panels, some lag in components like weldments but machining stuff starting to pick up.

Q: Krish Sankar asked about NAND as catalyst and proprietary content impact.

A: Jeff said NAND starting to be a catalyst, proprietary content will help gross margin with similar ASPs.

Q: Tom Diffely asked about new components and flow controllers.

A: Jeff said fittings will support weldment business, progress on flow controllers with evaluations taking time.

Q: Edward Yang asked about comparison to past cycles.

A: Jeff said profile different from past as some share gains can't reoccur, expect to outgrow WFE by 5%-10% and outgrow profitability with proprietary products.

Q: Christian Schwab asked about NAND moly replacement.

A: Jeff said has position in moly and will continue to grow with NAND recovery.

Q: Ross Cole asked about new gas panel and competitor share.

A: Jeff said there are applications that were done with smaller manufacturers internally, so will be new share gains for Ichor.