ICHOR HOLDINGS, LTD. — Q2 2021 Form 10-Q
Reporting period: Quarter ended June 25, 2021 (13 weeks); six-month results are compared with the periods ended June 26, 2020. Unless stated otherwise, amounts are in U.S. dollars.
Business context
Ichor designs and manufactures fluid-delivery subsystems and components used in semiconductor capital equipment. It operates as one reportable segment, with production facilities across the U.S., Asia, Europe, and Mexico. Management attributed growth primarily to stronger global wafer-fabrication-equipment demand and share gains at major customers.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net sales | $282.3m | $221.6m | $546.9m | $441.6m |
| Gross profit / margin | $47.4m / 16.8% | $29.3m / 13.2% | $86.9m / 15.9% | $58.0m / 13.1% |
| Operating income | $25.2m | $9.3m | $43.5m | $14.8m |
| GAAP net income | $22.9m | $6.8m | $37.5m | $10.2m |
| GAAP diluted EPS | $0.79 | $0.30 | $1.30 | $0.44 |
| Operating cash flow | Not separately provided for Q2 | $38.9m | $(25.2)m |
Q2 sales rose 27.4% year over year, and first-half sales rose 23.8%. Gross margin expanded 360 basis points in Q2 and 280 basis points for the first half. Management cited higher factory utilization and product mix; comparisons also benefited from prior-year contract-settlement and facility-closure costs. Q2 operating expenses were $22.1m, up from $20.0m; first-half expenses were broadly flat at $43.4m versus $43.2m.
Cash, liquidity, and debt
- At June 25, 2021, cash was $141.7m and marketable securities were $105.0m, versus $252.9m of cash at December 25, 2020. The cash decline primarily reflects purchases of marketable securities, debt repayment, and capital expenditures.
- First-half investing cash outflow was $119.9m, including $105.0m of securities purchases and $15.4m of capital expenditures. Financing cash outflow was $30.2m, including a $30.0m revolver repayment and $4.4m of term-loan repayments.
- Debt principal totaled $167.9m ($166.4m net of issuance costs), including $8.8m due within 12 months. Debt was down from $202.3m principal at year-end. The term loan and revolver bore interest at 3.00% and 2.03%, respectively, and facilities mature in February 2023.
- Current assets were $540.5m and current liabilities were $197.7m. Management said cash, revolver availability, and operating cash flows should cover anticipated needs for at least 12 months.
Operating cash flow improved from a $25.2m use in the prior-year half to $38.9m provided. Receivables and inventory increased by $18.1m and $31.5m, respectively, partly offset by a $33.3m increase in accounts payable.
Outlook, risks, and unusual items
- The filing provides no numerical revenue, earnings, or margin guidance. Management describes the semiconductor-equipment demand environment as a growth driver but does not quantify future demand.
- COVID-19-related social-distancing measures were reducing factory output; PPE, cleaning, logistics, labor costs, and operating inefficiencies could continue to pressure revenue and margins. The duration and scale of impacts were not quantifiable.
- The Union City, California facility closure was completed in Q2. The company said no further charges were expected. First-half facility-shutdown costs were $2.7m, partly offset by a $0.5m gain on asset sales.
- Other comparison items included a $1.4m contract-settlement loss in first-half 2020 and $1.8m of prior-year executive-transition costs. The effective tax rate was 3.1% in Q2 2021 and 5.7% for the first half, reflecting foreign tax-rate differences, a Singapore tax holiday, and share-based compensation effects.
- Management reported no material changes to previously disclosed risk factors, no material pending or threatened litigation, and effective disclosure controls as of quarter-end.
Investor facts to verify
- The MD&A overview lists non-GAAP net income of $26.187m for Q2 and $47.912m for the first half, but the detailed reconciliation reports $26.307m and $48.032m, respectively. The filing text does not explain this discrepancy; verify the correct values and related non-GAAP disclosures.
- Assess whether increased sales and improved margins can persist amid pandemic-related capacity, labor, and logistics constraints.
- Review working-capital requirements, particularly rising inventory and receivables, alongside capital spending and debt maturities.
- Monitor the effect of variable interest rates and foreign-currency movements; the company reported no hedging transactions.