ICHOR HOLDINGS: 2017 Q2 Earnings Release

The following excerpt is from the company's SEC filing.

ichr-ex991_6.htm

Exhibit 99.1

ICHOR HOLDINGS, LTD. ANNOUNCES SECOND QUARTER 2017 FINANCIAL RESULTS

FREMONT, Calif., August 10, 2017–(BUSINESS WIRE)–Ichor Holdings, Ltd. (NASDAQ: ICHR), a leader in the design, engineering, and manufacturing of critical fluid and gas delivery subsystems for semiconductor capital equipment, today announced financial results for the second quarter ended June 30, 2017 and guidance for the third quarter of 2017.

Highlights for the second quarter of 2017 and guidance for the third quarter of 2017 are as follows:

Revenue of $159.7 million

U.S. G AAP net income from continuing operations of $10.5 million and diluted earnings per share from continuing operations attributable to ordinary shareholders (“diluted EPS”) of $0.40

Non-GAAP adjusted net income from continuing operations of $15.5 million and non‑GAAP adjusted diluted EPS of $0.60

Third quarter revenue guidance of $160‑$170 million, inclusive of its previously announced acquisition of Cal‑Weld, Inc. (“Cal‑Weld”). Cal‑Weld is expected to generate revenue of $15‑$20 million in the last two months of the third quarter, during which Ichor will own Cal‑Weld

“Ichor had another record quarter, with increased demand across all product lines,” said Tom Rohrs, Ichor’s Chairman and CEO. “Our focus on capacity earlier in the year enabled us to meet this level of demand. Subsequent to the quarter‑end, we announced the acquisition of Cal‑Weld, a leading supplier of metal components. This acquisition is accretive to non‑GAAP gross margin and diluted EPS from day one and further cements our position as a key supplier to the semiconductor capital equipment OEMs.”

Quarter Ended

June 30,

March 31,

Change

June 24,

(in thousands, except per share amounts and percentages)

U.S. GAAP Financial Results:

Net sales

159,733

148,704

95,365

Gross profit percent

- 140 bps

- 120 bps

Operating margin percent

- 180 bps

+ 230 bps

Net income from continuing operations

10,470

12,952

+ 220%

Diluted EPS

n/m (1)

Non-GAAP Financial Results:

- 40 bps

- 10 bps

- 0 bps

+ 150 bps

Adjusted net income from continuing operations

15,528

14,567

+ 123%

0.29 (2)

+ 107%

Comparing second quarter 2017 diluted EPS to second quarter 2016 is not meaningful, as during 2016 (through our December 2016 initial public offering (“IPO”)), EPS was calculated using the two‑class method, required for participating securities. See the table,

Diluted Earnings per Share from Continuing Operations Attributable to Common Shareholders

, attached to the end of this press release for a calculation of EPS under the two‑class method.

For the second quarter of 2016, assumes the IPO shares sold, the conversion of preferred shares into ordinary shares, and vesting of restricted shares and options in connection with our December 2016 IPO occurred at the beginning of the measurement period, for comparability between periods. No adjustment is needed to diluted shares outstanding for the second and first quarters of 2017.

U.S. GAAP Financial Results Overview

For the second quarter of 2017, revenue was $159.7 million, net income from continuing operations was $10.5 million, and diluted EPS was $0.40. This compares to revenue of $148.7 million and $95.4 million, net income from continuing operations of $13.0 million and $3.3 million, and diluted EPS of $0.51 and $0.06, for the first quarter of 2017 and second quarter of 2016, respectively.

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Non-GAAP Financial Results Overview

For the second quarter of 2017, non-GAAP adjusted net income from continuing operations was $15.5 million and non-GAAP adjusted diluted EPS was $0.60. This compares to non-GAAP adjusted net income from continuing operations of $14.6 million and $7.0 million, and non-GAAP adjusted diluted EPS of $0.57 and $0.29, for the first quarter of 2017 and second quarter of 2016, respectively.

Third Quarter 2017 Financial Outlook

For the third quarter of 2017, Ichor expects revenue and non-GAAP adjusted diluted EPS to be in the range of $160-$170 million and $0.59‑$0.65, respectively, which is inclusive of the Cal‑Weld acquisition. We expect third quarter revenue and non-GAAP adjusted diluted EPS related to the Cal‑Weld acquisition to be $15‑$20 million and $0.07‑$0.10, respectively, in the last two months of the third quarter, during which Ichor will own Cal‑Weld.

This outlook for non‑GAAP adjusted diluted EPS excludes known charges related to amortization of intangible assets and share‑based compensation expense, but does not reflect any items that are unknown at this time, such as any additional charges related to acquisitions or other non-operational or unusual items, as well as other tax related items, which we are not able to predict without unreasonable efforts due to their inherent uncertainty.

Balance Sheet and Cash Flow Results

At June 30, 2017, Ichor had cash and restricted cash of $66.8 million, compared to cash and restricted cash of $52.6 million at December 30, 2016. The increase in cash was primarily due to $7.5 million of net cash provided by operating activities, $7.3 million of proceeds from the exercise of the underwriters’ over‑allotment option in January 2017 in connection with our IPO, and $2.2 million of proceeds from the exercise of stock options by certain employees of the Company, partially offset by net cash used in investing activities of $2.8 million. Our operating cash flows of $7.5 million for the six months ended June 30, 2017 was due to net income of $22.7 million and non-cash charges of $5.9 million, partially offset by a net increase of $21.1 million in our net operating assets and liabilities.

We use a 52 or 53 week fiscal year ending on the last Friday in December. The three months ended June 30, 2017, March 31, 2017, and June 24, 2016 were 13 weeks. References to the second quarter of 2017, first quarter of 2017, and second quarter of 2016 relate to the three months ended June 30, 2017, March 31, 2017, and June 24, 2016, respectively.

Use of Non-GAAP Financial Results

In addition to U.S. GAAP results, this press release also contains non-GAAP financial results, including non-GAAP adjusted net income from continuing operations and non-GAAP adjusted diluted EPS. Non-GAAP adjusted net income from continuing operations is defined as: net income from continuing operations; excluding amortization of intangible assets, share-based compensation expense, and other non-recurring expenses; tax adjustments related to those non-GAAP adjustments; the tax benefit associated with the acquisition of Ajax; and certain other non‑recurring charges. Non-GAAP adjusted diluted EPS is defined as non-GAAP adjusted net income from continuing operations divided by adjusted diluted ordinary shares, which assumes the IPO shares sold, the conversion of preferred shares into ordinary shares, and vesting of restricted shares and options in connection with the IPO occurred at the beginning of the measurement period.

Management uses non-GAAP adjusted net income from continuing operations, and non-GAAP adjusted diluted EPS to evaluate Ichor’s operating and financial results. Ichor believes the presentation of non-GAAP results is useful to investors for analyzing business trends and comparing performance to prior periods, along with enhancing investors’ ability to view Ichor’s results from management’s perspective. A table presenting the reconciliation of non-GAAP results to U.S. GAAP results is included at the end of this press release.

Conference Call

Ichor will conduct a conference call to discuss its second quarter 2017 results and business outlook on August 10, 2017 at 1:30 p.m. PT.

To listen to the conference call via the Internet, please visit the investor relations section of Ichor’s Web site at ir.ichorsystems.com. To listen to the conference call via telephone, please call 844‑395‑9251 (domestic) or 478‑219‑0504 (international), conference ID: 58939218.

A taped replay of the webcast will be available shortly after the call on Ichor’s website or by calling 855‑859‑2056 (domestic) or 404‑537‑3406 (international), conference ID: 58939218.

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About Ichor

Ichor is a leader in the design, engineering and manufacturing of critical fluid delivery subsystems for semiconductor capital equipment. Our primary offerings include gas and chemical delivery subsystems, collectively known as fluid delivery subsystems, which are key elements of the process tools used in the manufacturing of semiconductor devices. Our gas delivery subsystems deliver, monitor and control precise quantities of the specialized gases used in semiconductor manufacturing processes such as etch and deposition. Our chemical delivery subsystems precisely blend and dispense the reactive liquid chemistries used in semiconductor manufacturing processes such as electroplating and cleaning. We also manufacture certain components for internal use in fluid delivery systems and for direct sales to our customers. This vertically integrated portion of our business is primarily focused on metal and plastic parts that are used in gas and chemical systems, respectively. For more information, please visit Ichor’s website at: www.ichorsystems.com.

Safe Harbor Statement

Certain statements in this release are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as “guidance,” “expects,” “intends,” “projects,” “plans,” “believes,” “estimates,” “targets,” “anticipates,” and similar expressions are used to identify these forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements regarding expected revenue and non-GAAP adjusted diluted EPS, as well as any other statement that does not directly relate to any historical or current fact. Forward-looking statements are based on current expectations and assumptions, which may not prove to be accurate. These statements are not guarantees and are subject to risks, uncertainties and changes in circumstances that are difficult to predict. Many factors could cause actual results to differ materially and adversely from these forward-looking statements, including: (1) the integration of Cal‑Weld with Ichor, including the ability to retain customers, suppliers and key employees, (2) dependence on expenditures by manufacturers and cyclical downturns in the semiconductor capital equipment industry, (3) reliance on a very small number of original equipment manufacturers for a significant portion of sales, (4) negotiating leverage held by our customers, (5) competitiveness and rapid evolution of the industries in which we participate, (6) risks associated with weakness in the global economy and geopolitical instability, (7) keeping pace with developments in the industries we serve and with technological innovation generally, (8) designing, developing and introducing new products that are accepted by original equipment manufacturers in order to retain our existing customers and obtain new customers, (9) managing our manufacturing and procurement process effectively, (10) defects in our products that could damage our reputation, decrease market acceptance and result in potentially costly litigation, and (11) dependence on a limited number of suppliers. Additional information concerning these and other factors can be found in Ichor’s filings with the Securities and Exchange Commission, including other risks, relevant factors and uncertainties identified in the “Risk Factors” section of Ichor’s Annual Report on Form 10‑K or subsequent filings with the Securities and Exchange Commission. We undertake no obligation to update publicly or revise any forward-looking statements contained herein to reflect future events or developments, except as required by law.

Contact:

Maurice Carson, 510-897-5200

IR@ichorsystems.com

Source: Ichor Holdings, Ltd.

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Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

December 30,

Assets

Current assets:

65,044

50,854

Restricted cash

Accounts receivable, net

39,818

26,401

Inventories

96,995

70,881

Prepaid expenses and other current assets

Current assets from discontinued operations

Total current assets

208,543

157,090

Property and equipment, net

14,895

12,018

Other noncurrent assets

Deferred tax assets

Intangible assets, net

28,548

32,146

Goodwill

77,071

77,093

Total assets

330,989

282,491

Liabilities and Shareholders’ Equity

Current liabilities:

Accounts payable

101,493

88,531

Accrued liabilities

Other current liabilities

Current liabilities from discontinued operations

Total current liabilities

116,224

101,070

Long-term debt, net of current portion

38,208

37,944

Deferred tax liabilities

Other non-current liabilities

Non-current liabilities from discontinued operations

Total liabilities

156,251

140,832

Shareholders’ equity

Preferred shares ($0.0001 par value; 20,000,000 shares authorized; no shares issued and outstanding)

Ordinary shares ($0.0001 par value; 200,000,000 shares authorized; 25,056,188 and 23,857,381 shares issued and outstanding, respectively)

Additional paid in capital

206,427

196,049

Accumulated deficit

(31,692

(54,392

Total shareholders’ equity

174,738

141,659

Total liabilities and shareholders’ equity

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Consolidated Statement of Operations

Three Months Ended

Six Months Ended

308,437

168,652

Cost of sales

136,227

124,689

80,185

260,916

141,547

23,506

24,015

15,180

47,521

27,105

Operating expenses:

Research and development

Selling, general, and administrative

14,842

13,547

Amortization of intangible assets

Total operating expenses

11,737

10,397

10,276

22,134

19,618

Operating income

11,769

13,618

25,387

Interest expense, net

Other expense (income), net

Income from continuing operations before income taxes

10,943

13,477

24,420

Income tax expense from continuing operations

23,422

Discontinued operations:

Loss from discontinued operations before taxes

(2,305

(4,029

Income tax expense from discontinued operations

Net loss from discontinued operations

(2,307

(4,032

12,840

22,700

Less: Undistributed earnings attributable to preferred shareholders

(1,070

Net income attributable to ordinary shareholders

Net income per share from continuing operations attributable to ordinary shareholders:

Net income per share attributable to ordinary shareholders:

Shares used to compute net income from continuing operations per share attributable to ordinary shareholders:

24,848,365

24,654,415

85,589

24,751,390

75,631

26,063,527

25,640,089

277,554

25,868,403

285,066

Shares used to compute net income per share attributable to ordinary shareholders:

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Consolidated Statements of Cash Flows

(in thousands)

Cash flows from operating activities:

Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization

Gain on sale of investments and settlement of note receivable

Share-based compensation

Deferred income taxes

Amortization of debt issuance costs

Changes in operating assets and liabilities, net of assets acquired:

(13,417

(10,732

(26,114

Prepaid expenses and other assets

(1,260

13,592

Other liabilities

(2,578

Net cash provided by operating activities

Cash flows from investing activities:

Capital expenditures

(5,214

Cash paid for acquisitions, net of cash acquired

(17,406

Proceeds from sale of intangible assets

Proceeds from sale of property, plant, and equipment

Proceeds from sale of investments and settlement note receivable

Net cash used in investing activities

(2,784

(17,737

Cash flows from financing activities:

Issuance of ordinary shares, net of fees

Proceeds from exercise of stock options

Borrowings under revolving commitment

Repayments on revolving commitment

(4,015

Borrowing on long-term debt

15,000

Repayments on long-term debt

(2,275

Net cash provided by financing activities

15,710

Net increase in cash

14,190

Cash and restricted cash at beginning of year

52,648

24,188

Cash and restricted cash at end of quarter

66,838

26,071

Supplemental disclosures of cash flow information:

Cash paid during the period for interest

Cash paid during the period for taxes

Supplemental disclosures of non-cash activities:

Capital expenditures included in accounts payable

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Reconciliation of U.S. GAAP Net Income from Continuing Operations to Non-GAAP Adjusted Net Income from Continuing Operations

(in thousands, except share and per share amounts)

Non-GAAP adjustments:

Share-based compensation (1)

Other non-recurring (income) expenses (2)

Tax adjustments related to non-GAAP adjustments

Tax benefit related to Ajax acquisition

Adjustments to cost of goods sold (3)

30,095

11,501

Non-GAAP adjusted diluted EPS (4)

Shares used to compute diluted EPS (5)

24,029,793

24,037,305

Of the total share‑based compensation expense non‑GAAP adjustment, $27, $8, and $0 is included in cost of sales for the second quarter of 2017, first quarter of 2017, and second quarter of 2016, respectively, and $542, $336, and $555 is included in operating expenses for the second quarter of 2017, first quarter of 2017, and second quarter of 2016, respectively. Of the total share‑based compensation expense non‑GAAP adjustment, $35 and $5 is included in cost of sales for the six months ended June 30, 2017 and June 24, 2016, respectively, and $878 and $967 is included in operating expenses for the six months ended June 30, 2017 and June 24, 2016, respectively.

Included in this amount for the second quarter of 2017 are (i) expenses incurred in connection with the secondary offering of our ordinary shares by FP and (ii) acquisition‑related expenses. Included in this amount for the first quarter of 2017 is (i) a refund from FPC and (ii) a gain on sale of our investment in CHawk. Included in this amount for the six months ended June 30, 2017 are (i) expenses incurred in connection with the secondary offering of our ordinary shares by FP, (ii) acquisition‑related expenses, (iii) a refund from FPC, and (iv) a gain on sale of our investment in CHawk. Included in this amount for the second quarter of 2016 and the six months ended June 24, 2016 are (i) IPO preparation expenses, (ii) consulting fees paid to FPC, (iii) bonuses paid to members of our management in connection with the cash dividend paid by us in August 2015, and (iv) acquisition‑related expenses.

During the second quarter of 2017, we corrected an error related to translating the inventory balances at our Malaysia and Singapore subsidiaries at an incorrect foreign currency rate. The error arose in prior period financial statements beginning in periods prior to 2014 and through 2016.  The correction resulted in a $1.75 million increase in cost of sales and a corresponding decrease in gross profit in our consolidated statement of operations and a decrease to inventories in our consolidated balance sheet during the second quarter of 2017.

Calculated by dividing non-GAAP adjusted net income from continuing operations by diluted shares outstanding.

For the quarter second quarter of 2016, assumes the IPO shares sold, the conversion of preferred shares into ordinary shares, and vesting of restricted shares and options in connection with our December 2016 IPO occurred at the beginning of the measurement period, for comparability between current and prior periods. No adjustment is needed to diluted shares outstanding for the second and first quarters of 2017.

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U.S. GAAP and Non-GAAP Summary Consolidated Statements of Operations

June 30, 2017

March 31, 2017

June 24, 2016

Cost of sales (1)

134,448

124,681

25,285

24,023

Operating expenses (1)

16,845

15,561

16,019

15,116

Of the total share-based compensation expense non-GAAP adjustment, $27, $8, and $0 is included in cost of sales for the second quarter of 2017, first quarter of 2017, and second quarter of 2016, respectively, and $542, $336, and $555 is included in operating expenses for the second quarter of 2017, first quarter of 2017, and second quarter of 2016, respectively.

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The following table calculates diluted EPS from continuing operations attributable to ordinary shareholders using the two class method,

required for participating securities,

as Ichor had two classes of stock during 2016. Beginning in the first quarter of 2017, Ichor no longer uses the two class method, as there is only one class of stock outstanding subsequent to our December IPO. All preferred shares were converted into ordinary shares in connection with our December IPO.

Undistributed earnings attributed to preferred shareholders

(3,259

(5,085

Net income from continuing operations, attributable to ordinary shareholders (1)

Net income per diluted share from continuing operations attributable to ordinary shareholders

Diluted shares used to compute net income from continuing operations per share attributable to ordinary shareholders

Under the two-class method, net income attributable to ordinary shareholders after deduction of preferred share dividends, if any, is determined by allocating undistributed earnings between the ordinary shares and the participating securities based on their respective rights to receive dividends. Basic net income per share attributable to ordinary shareholders is computed by dividing net income attributable to ordinary shareholders by the weighted-average number of ordinary shares outstanding during the period. All participating securities are excluded from basic weighted-average ordinary shares outstanding. Diluted net income per share attributable to ordinary shareholders is computed by dividing net income attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding, including all potentially dilutive ordinary shares, if the effect of each class of potential shares of ordinary shares is dilutive.

For purposes of calculating EPS under the two-class method, an accounting policy election has been made to treat each income statement line item (net income from continuing operations, net income from discontinued operations, and net income) as an independent calculation and only allocate earnings to participating securities for those line items for which income is reported, as the participating securities do not have a contractual obligation to participate in losses. There is therefore no allocation of losses to participating securities for those line items for which a loss is reported. Under this method, the sum of the individual EPS income statement line items will not reconcile to the total net income per share. 

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The above information was disclosed in a filing to the SEC. To see the filing, click here.

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