ICHOR HOLDINGS, LTD. — Q1 2022 Form 10-Q
Reporting period: 13 weeks ended April 1, 2022; comparison is the 13 weeks ended March 26, 2021. Ichor designs and manufactures fluid-delivery subsystems and components for semiconductor manufacturing equipment.
Financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $293.1 million | $264.6 million | +10.8% |
| Gross profit / margin | $43.9 million / 15.0% | $39.5 million / 14.9% | Margin +10 bps |
| Operating income / margin | $10.5 million / 3.6% | $18.3 million / 6.9% | Income down 42.7% |
| Net income | $8.0 million | $14.6 million | Down 45.1% |
| Diluted EPS | $0.28 | $0.51 | Down $0.23 |
| Operating cash flow | $(36.3) million | $25.6 million | Declined $61.9 million |
Management-reported non-GAAP gross margin was 16.0% versus 16.1%; non-GAAP net income was $20.2 million versus $21.7 million, and non-GAAP diluted EPS was $0.70 versus $0.76. These measures exclude specified items and are not substitutes for GAAP results.
Liquidity, debt, and balance sheet
- Cash fell $41.0 million from year-end to $34.5 million. Operating cash use reflected a $56.6 million increase in net operating assets and liabilities, led by higher inventory, lower accounts payable, and higher receivables.
- Capital expenditures were $3.4 million. Term-loan repayments were $1.9 million; no revolving-facility repayment was reported.
- Debt principal was $293.1 million ($291.0 million net of issuance costs), including $7.5 million due within 12 months. The $250 million revolving facility had $145 million drawn; the facilities mature October 29, 2026. Outstanding debt bore a 2.01% BSBY-based rate at quarter-end.
- Inventory increased to $263.9 million from $236.1 million. Total current liabilities were $194.1 million and total assets were $1.02 billion.
Material changes and management commentary
- Sales rose on strong semiconductor equipment demand and incremental IMG acquisition revenue, partly offset by supply-chain production constraints. International sales increased to $150.7 million, or 51.4% of total sales, from $125.4 million, or 47.4%.
- Gross margin improved slightly, with IMG’s accretive margins partly offset by higher materials, logistics, and labor costs and component shortages that reduced factory utilization.
- Operating expenses rose to $33.5 million from $21.3 million. SG&A included a $3.1 million non-recurring accrual for a probable employment-related settlement, as well as IMG-related costs and higher employee and professional expenses. Intangible amortization also increased after the IMG acquisition.
- COVID-related disruption, supply-chain constraints, tight labor markets, inflation, and the war in Ukraine were cited as sources of uncertainty and potential pressure on revenue and margins. Management said available cash, credit facilities, and operating cash flow should fund the business and current obligations for at least the next 12 months and beyond; no specific earnings or revenue guidance was provided.
Risks, contingencies, and controls
- Disclosure controls and procedures were assessed as ineffective due to previously reported material weaknesses in internal control over financial reporting. Remediation was underway, with completion expected before fiscal year-end 2022, subject to successful operation and testing of controls.
- The $3.1 million employment-related settlement was expected to be finalized and paid within 12 months. The filing separately states that Ichor was not a party to material pending or threatened litigation.
- Key business risks include reliance on a small number of OEM customers, semiconductor-capital-equipment spending, customer negotiating leverage, competition, and macroeconomic and geopolitical uncertainty. The filing reported no material change to the risk factors in the 2021 10-K.
Important facts for investors to verify
- Whether inventory accumulation and supply-chain constraints convert into shipments and cash generation, and whether operating cash flow recovers.
- How much of sales growth reflects underlying demand versus the IMG acquisition, and the sustainability of gross margins amid cost and utilization pressures.
- Progress in remediating the disclosed material weaknesses and the effectiveness of controls after testing.
- The final amount and timing of the employment-related settlement, and the effect of variable-rate debt and liquidity needs.