ICHOR HOLDINGS, LTD. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 26, 2021 (13 weeks), compared with the three months ended March 27, 2020. Amounts below are in U.S. dollars; financial figures are in millions unless noted.
Business context
Ichor designs and manufactures fluid-delivery subsystems and components used in semiconductor capital equipment. It operates as one reportable segment, with manufacturing facilities across the U.S. and internationally.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $264.6 | $220.0 | +20.2% |
| Gross profit / margin | $39.5 / 14.9% | $28.8 / 13.1% | +37.3% / +180 bps |
| Operating income / margin | $18.3 / 6.9% | $5.5 / 2.5% | |
| Net income | $14.6 | $3.4 | |
| Diluted EPS, GAAP | $0.51 | $0.15 | |
| Diluted EPS, non-GAAP | $0.76 | $0.52 | |
| Operating cash flow | $25.6 | $(21.0) | |
| Capital expenditures | $5.4 | $2.5 |
Revenue growth reflected higher customer demand amid global wafer-fabrication-equipment market growth and share gains at major customers. Higher factory utilization and product mix lifted gross margin; this was partly offset by $2.5 million of costs related to the planned Union City facility closure. SG&A declined 13.7%, largely because prior-year executive-transition and share-based compensation charges did not recur.
Non-GAAP net income was $21.7 million versus $12.1 million. The company’s non-GAAP adjustments included intangible amortization, share-based compensation, non-recurring items, facility-shutdown costs and related tax adjustments; management cautions that non-GAAP measures are not substitutes for GAAP results.
Liquidity, debt and balance sheet
- Cash was $242.9 million at March 26, 2021, down $10.0 million from December 25, 2020. Operating cash flow was $25.6 million; investing outflow was $5.4 million and financing outflow was $30.2 million.
- Accounts receivable was $108.7 million and inventory was $144.1 million at quarter-end. The filing attributes operating cash generation partly to a $22.1 million increase in accounts payable, alongside higher receivables and inventory.
- Total debt principal was $170.1 million ($168.3 million net of debt issuance costs), including $19.2 million drawn on the revolver. The company repaid $30.0 million of revolver borrowings and $2.2 million of term-loan principal during the quarter. Facilities mature in February 2023; stated quarter-end interest rates were 3.25% on the term loan and 2.50% on the revolver.
- Management said cash, revolver availability and operating cash flows should cover anticipated needs for at least the next 12 months. Debt is floating-rate; the company estimated that a 1% rate change would affect quarterly interest expense by $0.4 million, or $1.7 million annualized.
Material changes, outlook and risks
- Operations at the Union City, California facility ceased shortly after quarter-end. The quarter included $2.2 million of inventory write-offs and $0.2 million of severance costs associated with the planned closure.
- COVID-19-related distancing measures, factory inefficiencies, PPE and facility costs, logistics costs and labor costs may constrain output and pressure revenue and margins. The company said the duration and magnitude of these effects could not be quantified.
- No numerical forward guidance is provided in the supplied filing text. Management cited continued uncertainty from the pandemic and industry conditions.
- The company reported no material changes to the risk factors in its 2020 Annual Report, no material pending or threatened litigation, and effective disclosure controls as of March 26, 2021.
Important facts for investors to verify
- Whether demand, customer share gains and factory utilization persist, and whether pandemic-related operating constraints or costs worsen.
- The financial and operational effects of the Union City closure, including any additional costs and capacity implications.
- Whether operating cash flow remains strong as receivables and inventories grow, and whether the quarter’s cash generation depended materially on payment timing reflected in higher accounts payable.
- Debt repayment plans, revolver availability and exposure to floating interest rates before the February 2023 maturity.
- The sustainability of margins and GAAP earnings relative to results excluding facility-closure and other non-GAAP adjustments, as well as the impact of the Singapore tax holiday and other tax items.