ICHR - Earnings call transcript Q3 2024

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Operator

Good day, ladies and gentlemen, and welcome to Ichor's Third Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Claire McAdams, Investor Relations for Ichor. Please go ahead.

Claire McAdams

Thank you, operator. Good afternoon, and thank you for joining today's third quarter 2024 conference call.

the earnings call, and contain please within meaning our to you forward-looking read the conference laws. this recognize of you press as release listen statements As securities federal that both forward-looking such many which could statements. uncertainties, cause are risks and to results our of to number are a These of statements differ and actual control beyond which subject materially from XX-K include press annual and uncertainties with those fiscal Form release, report described risks in filings earnings spelled those These our and our those in on subsequent described for XXXX out in SEC. the

all statements consider should of You and forward-looking those risks and other light uncertainties. in

Additionally, financial measures we non-GAAP providing call. will certain during this be conference

of press supplement to the financial measures release financial IR their posted most earnings comparable website and non-GAAP a these GAAP financial our Our reconciliation measures. to each provide

call and CEO; prepared our with and will On turn the details provide Andreson, today will Greg Andreson. open remarks, update additional Swyt, me over then on now the for Jeff begin After Jeff? CFO. line to the our and business, Jeff guidance. call Jeff will an are our the questions. I'll we with Greg results our about

Jeffrey Andreson

to Thank welcome, earnings and everyone, QX you, Claire, call. our

of the business third strong results We to EPS Ichor's income growth nearly than $X.XX. flow-through improvement leverage and earnings and strong are of continued pleased QX. report margin more as in top revenues delivered increase. of generates from operating QX, with our sequential with sales model $XXX revenue forecast, gross in X% And quarter of XX% XX% growth sequential we million above end gross margin

QX And equipment semiconductor and incrementally each our to outlook. stronger has a have reporting pleased both progressed we QX through As very are become for our our to visibility upside market we be today results recovery the in process XXXX, quarter.

in outlook, and expected this second of margin in at ranges, flow-through half expect guidance gross XX% XX% which last some revenue more X% our investments over of year, revenues. XXX% the incrementally terms to increased target first than Within to of is midpoint of in XXXX to in model be our QX Around leverage. increase Our made the and compared R&D refinements stronger a half planned significant gross operating we to deliver half to financial currently stronger this we XXXX. of our time first we to income margin drive the

on results strategies. expected execution full year are of Our XXXX the our proof financial for points key strong

each we've increased through XXXX quarter improvement and For gross in example, margins QX. expect additional

to by content XXXX, expect SG&A had making while compared stepped in we as are of increase portfolio. to progress year. product to our the investments proprietary Most we year, similar maintain full importantly, levels excellent the strategies R&D up For about our XX% last

growth views environment. devices. requirements packaging, intensified. summarize profile. lower expectations reflect WFE new in that investments overall our Before headwinds the These to the of gate node our and I China qualifying briefly business are positive tailwinds performance around estimates Ichor's incremental next NAND the of What's At tailwinds leading trailing all all I'll August XXXX as specific WFE growth of related review growing clearer the to edge are lithography, much impacting at that incremental products, The WFE expected customer in demand the and magnitude debate in investments. call to XXXX. since is while for year grow revenue for primarily majority The largely is growth our same growth for advanced geared become has the progress on supporting time, all earnings AI

tailwind recently the expected downturn history. deposition net is increase a XXXX clearly and the steepest we've upgrades fluid the recovery, mix expansion is through and An has be X subsystems, fluid to WFE of deposition delivery as up to for by etch investments a net NAND witnessed in mix intensity deposition greater endured including we as where next have epi China advanced ALD. supply for multiple or decrease is last and in heavily intensity bit towards outperformance share increasing densities. to market because increase An for logic a Ichor. The over the use is delivery recent expectations on expected to a equate the going greater for increasing etch transition positive emerging advanced selective which to WFE as the and the change participate gas is for mainly around. longest steps of at require likewise environment Ichor, wallet. than a to will The change more delivery intensity and bringing advanced next the specifically mix will spending NAND area through NAND upgrades positive WFE world's foremost, bring of of and Furthermore, likewise most proportion First existing etch, is device more such in level enter aimed enabled confidence of a more architectures upgrading it well etch technology XXXX systems reflect relates where to also incremental advanced increased deposition whether in the These change intensity specifically the years. net and in NAND overall we spending base. as deposition XXXX. chambers WFE for a in in an Overall, of is expected positive process logic, growth all These larger gate etch tools we of is and installed drive applications a Ichor.

outside expected China mix is than positive another that overall of year, grow Ichor. this faster for the net WFE next This market. means is grow to will change WFE that Given

into portion of participated China environment by significant last China in a While we is selling domestic certainly domestic over the by business equipment the China OEMs. enjoyed couple served U.S. years, of OEMs WFE strong

this in will regions these revenue U.S. XXXX, towards internally next to other growth cycle. the for mix shifts As the outperformance WFE in OEMs

packaging in growth is XXXX largely advanced in additional incremental investments the in mitigating downticks tailwind, incremental an the EUV expectations. Finally,

have build fairly rates for come expectations Ichor in While year. for the remained installations EUV this down, stable have throughout XXXX

time, we expect business. priorities lower these subsidiary, investment packaging our that revenues this mix are spending we year be confident our advanced are outperform more and margin ability on summarize industry the growth of and environment level to shifts markets gross in customer the our the in lithography positive WFE year. outside the IMG. To offset of of participation regardless whole, slightly magnitude will XXXX XXXX, in growth for in in year. at semiconductors our our WFE continued applications of a by coming robust a strong to largely similar dynamics, next in the confident our of So expectations and through demonstrate Likewise, deliver of ability as of coming we for from enjoy very in are to Ichor's demand the we flow-through And profile expected expansion in

brief turning Before I'll well on gas component the call over our being next-generation our that as our update Greg, existing now on are panel. installed a to qualifications gas provide proprietary panels as

positively weldment component our manufacturing our quarters. with progress fittings, products them We over in revenue improvement products. on year in products, with demonstrated impacting gross continue are similar few our is our The into performance, which used pipeline. qualifications to cutting and margin last new profitability, by growth steady the our starting our this additional levels start closing I'll our make delivering component new

now now fittings qualification customers. at used The continue substrates and in are process valves complete are panel. used all been Fittings, XXXX. customers, to valves third for as next-generation our early panels. in are we qualified have ramp for X panels customers existing our our well we customer qualified at in at additional our Our X fittings all assemble at critical qualified component substrates our These next components customer will valves, of and XXXX. expect in our are of X qualification largest gas the volume currently X gas In our to gas we in high-purity a as proprietary that and in tool components

to our Now panel. next-generation moving gas

new proprietary a have panels to our manufacturer. expect device shipped the customers' XX evaluation now by of shipped of to our these and end panels on that have ship gas the year. gas Most additional an We over been XX tools of are

which typically take evaluations Our contains proprietary content to previously, months Ichor XX% tool expansion compared X XX% significant drive of These complete. new will about gas about panel profile. margin to gross our

the So the in the earliest initial be evaluation remains fourth quarter. completed late will

to remind During over everyone summary, [indiscernible]. In Greg the their into I'll financial operating robust grow. With leverage on contribution generate for our financial products to to model as more these as additional panel In our combination continued that to convey spending and operating QX, and Greg? around with details our margin a to I'd we tend move recap expense application, improvement profile an next-generation execution were outlook. qualified strong like in business confidence results gross discipline, our total I'll gas our to that, environment. confidence date and QX our turn bringing provide QX it we on further proprietary our significant today qualifications revenues to and

Greg Swyt

balance of as our financial well These cash and would I adjustments. sheet exclude begin, of the impact financial Investors P&L flow and a for tax nonrecurring assets, share-based non-GAAP last summarizes the useful that the and GAAP the There metrics compensation, a available of the discussed supplement Section Jeff. To are non-GAAP today is charges several amortization Thanks, intangible website of to on acquired discrete measures measures. results summary quarters. like emphasize as information our items that and

from while these X% to margin to higher QX basis end our than at QX efficiencies, revenues the produced points expectations, X% in ERP a QX integration products internally same were XX by came drove projects. the were implementation which slightly forecast we upside due which below slightly of mix was XX.X%, year. our million million, to $XXX expenses our quarter upper and last and with QX. in higher above expenses factory sequentially than The $XXX,XXX QX continue associated improved in the below of was operating recognize guidance Third and products, up the $XX.X improvements at of benefit strong Gross from muted the increase revenues. period

And $X.X income we ratio. of The reflecting Our for QX a expense offset quarter million. than expense of share tax the of completely per same improved resulting impact our we was of down lower losses $X.X million, QX foreign time, currency expected. net exchange the operating experienced leverage foreign from interest was which expense million unfavorable at was QX, than $X.XX. higher In forecast, income the $X.X Net benefit full was fluctuations.

the on at flow cash in $XXX from and equivalents working quarter from during the QX were higher in turning previous In during the increased to sheet. Inventory the increased net the to inventory revenue quarter million and days. a to million end reflecting $X DSOs $X million. operations, balance to and receivable $XXX capital the at our X.X. investment million quarter. million Accounts $X generated increased from increased Now XX turns QX, quarter cash We end the quarter

our $XXX million Now revenues will provide of sequentially I XXXX. XX.X% With to guidance improve gross expect $XXX the in of range will to again QX XX.X%. fourth margins anticipated range of to we for the a quarter million,

benefits Looking the our factory to see XX% forward flow-through at least to XXXX, improvement efficiencies in and incremental produced margin revenue we gross drive expect to on internally product our to a to continue growth. of

the similar from to At continued midpoint QX to gross in expect at given to $XX.X for income guidance, expect an levels. XX% expenses margin we approximately levels operating million, over QX remain forecast of expansion flat operating increase and our We OpEx. achieve QX

expense invest be demand operating stronger development X% purposes, modeling of initiatives. the in for you other interest for expense our in expenses products as a assume expected increase expected annual to XXXX, the to with $X.X and an other $XXX,XXX. million we Within to QX XX% additional is to continue in be growth Net environment proprietary should expected

Given entire half balance in expense of have interest paydown our our QX, in reduced the by revolver fiscal annual we XXXX.

other million. as insurance ratios for For expenses current and improve of and our net XXXX, forecast continued a we for leverage our see is $X improvement expense we in XXXX net should interest

to expense given of year full our non-GAAP $XXX,XXX, expect record expense QX We of $X tax a forecast in million. tax

expected your for to currently to the update is of range and XX% you beyond, As XXXX effective be the models XX%. in assumed tax rate

to Finally, of ready Please share $X.XX EPS of million reflects we range line. XX.X for a are $X.XX open our QX to shares. Operator, questions. the count take guidance

Operator

Riley B. is The Instructions] Ellis question [Operator first from from Craig Securities.

Craig Ellis

you think little Congratulations Jeff, than I just just heard wanted calendar bit on back linearity some we that DRAM. should I and as so about of A less spending the year, of guys. and year. NAND I more things through that be you little going ago hear the way relates revenue Any it go out a Did to Ichor. aware the listening next some 'XX we takes execution, notable citing. And maybe of start to gives plays of the X think that to the I commentary, were to the correctly? as months

Jeffrey Andreson

and What remarks, high-bandwidth that's it foundry that we about let start dry X of some as I'll is, going to going think be I because don't of squeezed logic be think memory. down. even in to We see with will talk pullback, kind continue pretty obviously excellent. be well. in the but think thanks. hit to we Craig, We didn't you just strong the prepared with them specifically of Intel about going was me that's there. with That say I DRAM. would all strong,

of half, but -- it we're bigger X% you and talked always half, yes, would we time about little that we've in maybe it maybe at X% second it X% where been we're what I've the that's start second of strengthened seeing the you I say, since or when up NAND 'XX, probably up that on earlier. I seen look I to believed And is last think the our before. would things a kind because XX% the was So think, of probably like picked bit one

QX. QX months our say confident strengthening. but begin first we see I year. it the to and of coming we're that with QX our into fairly months. of up, investment base now where months the in So across customer I this some going would pretty Maybe in have of we're as X we're But that X we're visibility QX, starting see ago. out up was was to seeing NAND also similar is initially And some it X good some think pretty half alignment coming

off and prior 'XX, of peak, the we're keep kind coming positive of it's a see level we Now pretty or XX% low that to of up mind, in might even but momentum. in crawling a still XX%

pretty playing question, demand Now is X-part say I'm the think do I see quarter your kind this we we're comfortable year? we through I'd into environment how out the which getting with next this quarter. see of

them of see this then I very the time. not looking I similar downtick a a levels. rest big the I'm kind So of for see year. throughout demand uptick progress or And at we'll it as think

Craig Ellis

That's this too, then follow-up, real could helpful. if I And a ask Jeff. and you, one is for

Just the of content. lot a meaningful with proprietary progress

XXXX, in ramp? at revenue look we should contribution thinking or you either products of be As move as into some gross those to margin of what production more terms about particular a

Jeffrey Andreson

Yes.

and say quarter. consumed out that today So We the well I'd guys products. internally remind of I year, a be over still gas even would you we we'll getting X,XXX panels into talked it vast passive mostly XX ship about next majority there.

the even basis improvement to comfortable we we're is flat to that large think the of But under the qualifications. think kind So portion would fittings, I way work a around a continue about large with the it's too. say it ones gas XX those in pretty grow I would points valves, models. that part mentioned I box, substrates, our up of are through you expect as I environment, inching the will as be quarter-over-quarter

Operator

Brian Chin from is question next The from Stifel.

Brian Chin

Jeff, questions. maybe on follow-up to NAND. few A

levels referenced starting and previously, customers kind particular. to the in a your these kind how of X some has be terms remember into lack kept visibility inventory at recovery catalyst it of of bit X year? maybe sounds I So in little your that's like a next and a or revenue of some higher of bit of in guide of the you softness NAND

demand I'm to wondering, of buffer into, quickly that kind And going so of even is real that inventory some still you then inventory you're an as sort off, burn to are there? operating shift opposed there to and being a seeing lag of there you're or

Jeffrey Andreson

gas lag. in no think I panels, So

going these it's support I through. you, to remind tool I'd a we transitions. those are going technology tool participate new a that's think or And refurbished whether

I not see running, have lag components, bit what it but of -- say we So juncture. some but particularly in Those little a are I what call growing, do a would the is think at be a that, still of some up. I there'll bit of weldments. Having would little starting this machining like sideways, I stuff expected said the to would pick

overhang. that seeing hate still now. -- largely say I recovery, So there's it's it's an get we're but it's would -- tied this going kind of some kind say to of of I NAND to

muted X might tell. sides... us X, but to little part numbers be of bit -- a both the X, There's for a for lot Hard So months. next on

Brian Chin

for Fair that be kind sort basis step in that a Do China pluses to you There enough. positive a that negative Is where referenced maybe maybe that of visibility it some the of in on revenue not you And how high a what's that's of could are kind on but maybe at indirectly on variable. is QX. a suggest? QX, similar -- like customers. levels earlier kind down there? that of of at terms relative variables. provided reflective directly is initial more you of China think to Is level, occurs, your messaging you of

Jeffrey Andreson

mind, would That's period I of it think, of larger rebalancing be for of months as we I well. so and bit a now, X strong another to had going or maybe quarter-over-quarter, the say business, lithography in little carbide. silicon to is a our pretty some muted a to extent, keep

still portion consistent is with and down to will obviously, I I larger would going bit. a OEMs say large I'd So it that other WFE, but be a China, very comments of maybe a to say extent, mean, be

some I about those. the but we tailwinds -- think So will talked of offset

Brian Chin

thing. guidance I a quick sorry that you it, the with is of to are if progress could content be number, for updates gave proprietary Relative you XXXX, that, -- initiatives, XX% the missed gross maybe Last you on or margin right positive higher. confident incremental provided lot feeling and but even

Jeffrey Andreson

Do you want to go ahead?

Greg Swyt

Yes. Yes, our the see we're as least Brian, of flow-through XX%. to at we Greg. said, of benefit continuing it's

we So that. continue expect to

more is stronger to from QX QX, the XX%. fact, QX a In on flow-through little than

least continue would I do XX% your expect to at as So modeling. you

Operator

from question is Cowen. from TB next The Krish Sankar

Sreekrishnan Sankarnarayanan

guidance. and results good the Dressing

do WC take with demand [indiscernible] post card, of your or pull-through? in and the more on panels for seeing Just because this seeing end helping gas already true upgrades, is to NAND through you NAND the uptick clarification pull actually you're say normalizing you inventory more that do NAND. actually, are But that's

Jeffrey Andreson

We're wouldn't going the anything, into tell seeing panels. say they're when can some majority it's we of gas I vast but NAND.

is stronger to as some think quarter, but half going the I we activity there enter this XXXX. it's be first of So

Sreekrishnan Sankarnarayanan

content, it. helping can Got share very also market it. on I gross XXXX. And how so panel proprietary see That's Got in it if think gains margin. or the actually to help about your unit and clearly then Would XXXX helpful. gas and their that share, ASPs

Jeffrey Andreson

would about gas I arena. for think of that the way new we are the is in gains. think panel would is I you we've share what I applications But share on see panel almost we the these don't all incremental are early tell shifts gas some generally large

margin a be the these panels next that will level same help similar don't we will And overall But higher ASP. just so profitability I the gas with of a be it ship of suspect that year. today, will very helpful

Operator

from from is D.A. Diffely Tom Davidson. question Next

Thomas Diffely

we strong. just sounds driver was be in Jeff, earlier of DRAM fourth a expect question just and quarter, Craig's from comments, like about discrete quarter relatively more it going but and your you going be to stable back I to it to first it here the guess thought maybe

Jeffrey Andreson

not guess Well, be overall know anything whether level see I of to don't talking sure I'm don't you, revenue going I would view pulling picture. exactly. I quarter-over-quarter. it's not I have I stable I'm a tell it back. top about or I DRAM,

read nodes here think at and really really shortages most the we memory. of advanced for investments see most I high-bandwidth most what and the of is around

back don't think at I all. So pull going that's to

Thomas Diffely

look components, the can an qualified That's fittings that it, them to then helpful. soon your be eager when on new now, X, And guess, at is Okay. systems? they're once X specifically you right then you I at and put

Jeffrey Andreson

haven't in weldment unless think by for. support will We would a -- yes, business I that say own that's fittings. largely fitting our all I entire designed vast our majority But there's specific unique general, of somebody with we the supplied

Thomas Diffely

some on flow time Okay. of lead the products Great. And then any longer like controllers? updates the

Jeffrey Andreson

qualified this, progress. to And least X I pretty we're possibly good when we longer. would our they customers take make say it can these We've evaluations at months, you Tom, -- application another know making got customers,

progressing. moving so doubling in get And shipments, of have those We're next the and front what almost might we the panels. of of year's view It's pretty And attacking. number I we late of early we're from say year some But rollout some gas half then the next indication QX. would year. we're decent

think And that. inflection. I it a of kind big XXXX so and still we're be things But go applications starting will to multiple after like

Thomas Diffely

Okay. question for last And Greg. then

look XX% or year to you when At point, of do gas when think that a delivered. margin? months these being incremental panels you upside So we are our have some X out second-generation

Craig Ellis

alluded as those. see based Tom, that margins expect Jeff That to stronger we to on is far on what that should realistic, the as

than as would a So XX%. mix, higher will obviously, won't expect that they -- would I needle. move contribute we those But a volumes the would higher become they low that expect

Operator

question from The from is Yang Oppenheimer. next Edward

Unknown Analyst

Congratulations the the on impressive progress pipeline. proprietary to you're And it's on product nice quarter. a really see making

You another X. mentioned, on up Jeff, to getting application

was I you on the still was over if in you X-month or see time on might but said I it schedule X- track? prior quarter, X progress applications, that wondering a to was frame. think

Jeffrey Andreson

everything but I nicely I as in closed. this it's they're one few specifically progressing pipeline expected pretty get mean to well. -- track. I No, haven't said, do spoken timing others don't on, I think know that I but we the a there on we think about And that I are remember

Unknown Analyst

being outgrowing also Are I mentioned to your -- more? And outsourcing customers. faster seeing right than WFE mean, your and the you customers growing Okay. exposed you pick outgrowing platforms.

Jeffrey Andreson

I don't think they're outsourcing less.

of are we're their you is I But I we're incremental in think It's to well. when think some of high-level some assembly it, of work kind around call think customers. demand largest customers sad. pockets more, seeing general, look some I do pretty for there our I'll at generally focused other additional strategy kind our as the X ones customers, new and new where

think And so bodes us the next well outgrow for this to kind of of I year. all industry WFE projections for

Unknown Analyst

to you perspective. down very And today I'd the you're very, just Is finally, lot been past to obviously curve compare the growth love of recovery versus in this different how cycles, bifurcation than kind like In was this with does AI. out Ichor's others? get look on China past, of There's past? experience, your Leaning coming of your cycle seeing would consistent a strong. what a

Jeffrey Andreson

Yes. mean is the yes. answer I

I don't our came story the big what I large and our $XXX like outsourcing million something to as generated of of $XXX or portion of, share newer that gains your we or of million A $XXX in 'XX, the a that. one of things it of off one of base million of was know customers. the was is, out final like something that in think we

reoccur. And so can't that

of was that we profile, XX% up the outsourcing I than that say and this less large we piece grew half think industry and grew what the there. is that. And I would picked a So

will about if different. a talked to the maybe is grows the So XX% XX-ish. little going bit grow We profile market year-over-year be

layer every kind And that. share so about on how as try and we single think year. that's new of go And gains along we then we

-- your answer think of I all So I question. did

Unknown Analyst

helpful. Very did. sure You

Operator

Capital is Group. from next The from question Craig-Hallum Christian Schwab

Christian Schwab

I you the -- would hear WFE Great did kind becoming... you outgrow That's you so did quarter, guys. that But just targeted goal say Jeff, X%. by of

Jeffrey Andreson

single kind now. at I the might in probably Yes. been on our It's We XX% We'll that out say, XX%. closer maybe look call, high last in consensus would now, which have somewhere be the there of to digits, neighborhood. is,

So be we'll with And we're proprietary of given we'd level then it. profitability that certainly comfortable that outperformance. outgrow products cutting the

Christian Schwab

your going then stacking. XXX NAND be anything to there move that on side, as in or XXX not going transition seems about molly a anything there product the to of really? the Is you layer that huge to And portion enthusiasm they that replacement benefits there on Is layer.

Jeffrey Andreson

position moly I and would a say X tomorrow. we molly we'll have today, have in

as you out there's know, market has chasing large them customers big portion there X that a -- of and think probably X of I very it.

So I it will. think don't

I think like think think us to help recovers. there but applications and it's I will is customer -- base grow, our it that across continue NAND that I or will that, things other

Operator

is Needham from Next question Ross from Cole & Company.

Ross Cole

the on Congratulations results.

was So earlier, to -- your new it incremental almost going are of with I share and forward your customers. you that this second change the the for believe, new there wondering, currently are gain opportunities? panel going like of some large these overlap had of some gas one it's sounds early share gains. mention new applications that with that Is business you all new of I XX% competitors have, X a roughly with incremental generation

Jeffrey Andreson

going are be they specific, to say not or competitive smaller but are I'm -- with customer-specific I applications Yes. were that gas done were manufacturers and would internally. there panel

be for new will it us. So

Operator

to This concludes question-and-answer would the the Jeff closing to session. I turn floor Andreson for like over comments. back

Jeffrey Andreson

investors to thank Summit to for look for dedication the our to on New the February. Operator, you York January look you like to free early to forward meet employees, call in forward at Needham ongoing Conference and in out this updating with on their our call on to follow Please quarter. concludes suppliers, our joining on the with want support. to We and our customers opportunity December I I'd us thank us. investors feel XXth reach Growth We XXth. call. care QX earnings up directly to that

Operator

concludes This today's you. Thank teleconference.

you disconnect your this You your may participation. for Thank time. lines at

Ichor (ICHR) 4 Nov 242024 Q3 Earnings call transcript