Ichor Holdings, Ltd. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 25, 2020 (52 weeks); fourth quarter ended December 25, 2020. The company designs and manufactures gas and chemical fluid-delivery subsystems and components for semiconductor equipment manufacturers. Its largest customers were Lam Research and Applied Materials.
Financial performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Net sales | $914.2 million | $620.8 million | +47.3% |
| Gross profit / margin | $124.9 million / 13.7% | $86.4 million / 13.9% | +44.6% gross profit; margin down 20 bps |
| Operating income / margin | $41.6 million / 4.5% | $15.0 million / 2.4% | Improved |
| Net income | $33.3 million | $10.7 million | Improved |
| Diluted EPS | $1.42 | $0.47 | Improved |
| Operating cash flow | $38.3 million | $57.2 million | Down $18.9 million |
| Capital expenditures | $10.3 million | $12.3 million | Down $2.0 million |
| Cash at year-end | $252.9 million | $60.6 million | Up $192.3 million |
| Debt principal outstanding | $202.3 million | $181.0 million | Up $21.3 million |
| Working capital | $333.7 million | $113.1 million | Up $220.6 million |
FY2020 non-GAAP net income was $59.0 million and non-GAAP diluted EPS was $2.52, compared with $28.3 million and $1.25 in FY2019. These are company-defined non-GAAP measures; the filing reconciles them to GAAP results.
Fourth quarter: Sales were $245.0 million, gross profit $34.4 million (14.0% margin), operating income $14.2 million, net income $12.5 million, and diluted EPS $0.51. In Q4 2019, sales were $189.4 million, net income $8.0 million, and diluted EPS $0.35.
Material changes versus FY2019
- Revenue growth reflected stronger global wafer-fabrication equipment demand and share gains at major customers. U.S. sales rose to $491.0 million and foreign sales to $423.3 million.
- Gross margin slipped 20 basis points despite higher factory utilization and favorable product mix. COVID-related factory costs and discrete charges contributed to the pressure.
- Operating income rose substantially as sales increased and operating expenses grew more slowly than revenue. SG&A included $1.8 million of executive transition costs.
- Operating cash flow declined as working capital absorbed cash, including higher receivables and inventory and lower accounts payable.
- Cash rose largely because the company issued 4.6 million ordinary shares in December for net proceeds of $139.4 million. The offering increased shares outstanding.
- Debt principal increased to $202.3 million, including $49.2 million drawn on the revolving facility. The weighted-average borrowing rate fell to 3.75% from 4.78%.
Outlook, commentary, risks, and unusual items
- The filing provides no specific quantitative revenue or earnings guidance. Management stated that cash, revolver availability, and operating cash flows should cover anticipated needs for at least 12 months.
- Management cited continued growth opportunities from semiconductor equipment demand, customer outsourcing, expanded product offerings, and chemical-delivery systems. The company acquired a precision-machining operation in Nogales, Mexico, for $5.0 million in December 2020.
- COVID-19 affected factory output and increased costs for protective equipment, cleaning, logistics, labor, and operational inefficiencies. The duration and financial impact remained uncertain.
- Customer concentration is substantial: Lam Research represented 52% and Applied Materials 35% of FY2020 sales. The company has no long-term minimum-volume purchase commitments.
- Reported gross profit included notable 2020 charges: a $3.6 million loss on Tampa facility assets and inventory, $2.2 million related to the Union City facility shutdown, and a $1.4 million contract-settlement loss. The Union City closure was expected to be completed by the end of Q1 2021.
- Singapore’s tax holiday contributed a $5.9 million tax benefit in 2020. The existing holiday ran through 2021; management expected to finalize an extension through 2026 in Q1 2021.
- Other key risks include semiconductor-industry cyclicality, supplier constraints, pricing pressure, changing customer orders, foreign-exchange exposure, and debt covenants. The credit agreement matures in February 2023 and includes leverage and fixed-charge coverage requirements; its rates are tied to LIBOR or other reference rates.
- Management reported effective disclosure controls and internal control over financial reporting at year-end. The auditor did not attest to internal-control effectiveness, consistent with the company’s emerging-growth-company status.
Important facts for investors to verify
- Whether FY2020’s demand and share gains persist, and how the high dependence on two customers affects future sales and pricing.
- Whether margins recover as pandemic-related costs and facility-transition charges subside, and whether the Union City closure is completed as planned.
- Why operating cash flow fell despite much higher earnings; in particular, monitor receivables, inventory, payables, and cash conversion.
- How the December equity issuance and increased debt affect per-share results, liquidity, and the company’s capital allocation.
- Progress on the Singapore tax-holiday extension, and the effect of any change on the effective tax rate.
- Debt repayment capacity, covenant headroom, and the transition from LIBOR-linked rates.