Good day, ladies and gentlemen, and welcome to Ichor Holdings, Ltd.'s First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Instructions will be given at that time. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Claire E. McAdams, Investor Relations for Ichor Holdings, Ltd. Please go ahead.

Thank you, operator. Good afternoon, and thank you for joining today's First Quarter 2026 conference call. As you read our earnings press release and as you listen to this conference call, please recognize that both contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control and which could cause actual results to differ materially from such statements. These risks and uncertainties include those spelled out in our earnings press release, those described in our annual report on Form 10-K for fiscal year 2025 and those described in subsequent filings with the SEC. You should consider all forward-looking statements in light of those and other risks and uncertainties. Additionally, we will be providing certain non-GAAP financial measures during this conference call. Our earnings press release and the financial supplement posted to our IR website each provide a reconciliation of these non-GAAP financial measures to their most comparable GAAP financial measures. On the call with me today are Philip Barros, our CEO, and Gregory F. Swyt, our CFO. Phil will begin with an update on our business, and then Greg will provide additional details about our results and guidance. After the prepared remarks, we will open the line for questions. I will now turn the call over to Philip Barros. Phil?

Thank you, Claire, and welcome, everyone, to our Q1 earnings call. Just a few months into a multiyear growth cycle, and we are already delivering upside to our outlook and demonstrating strong earnings leverage. Q1 revenues of $256 million came in at the upper end of our expectations, up 15% from Q4. Gross margins of 12.8% also approached the high end of our guidance, enabling us to more than triple our operating income versus Q4 and deliver our highest earnings per share in three years. The early investments we made in ramping labor headcount and prepositioning inventory are paying off. These are enabling Ichor Holdings, Ltd. to deliver strong execution for our customers to achieve growth towards the high end of our demand forecast. Demand across our core markets has further strengthened since our last earnings call. Our visibility now extends deeper into 2026. Within this very robust demand environment, we expect Ichor Holdings, Ltd. to be a top performer both in terms of growth and earnings leverage. Our Q2 forecast now reflects unconstrained demand exceeding $300 million. This is one of the steepest ramps witnessed in Ichor Holdings, Ltd.'s history, representing growth well over 30% in just two quarters. Not only that, but with stronger visibility since our last earnings call, we continue to expect every quarter in 2026 will be a growth quarter for Ichor Holdings, Ltd. We entered the year with increased momentum and a clear strategy. Our higher confidence today reflects Ichor Holdings, Ltd.'s critical role within the WFE industry and strong progress towards our strategic objectives. The technology transitions and strategic capacity expansions underway, largely in support of AI hyperscaling, favor etch and deposition applications, which favors Ichor Holdings, Ltd. A great example of this is the 30% increase in the number of process steps required to produce leading edge logic with gate-all-around architectures. Increased investments in gate-all-around technology are significant tailwinds for Ichor Holdings, Ltd.'s growth. Our objective is to gain share through this cycle and the steps we have taken to preposition inventory and ramp labor headcount will allow us to continue to perform for our customers, and this is how we will win. Turning to an update on our strategic initiatives we introduced last quarter. Q2 is shaping up to be a major step forward in our global footprint realignment. As a reminder, this initiative is aimed at driving three primary benefits. First, we are structurally eliminating the margin challenges we faced previously in order to drive stronger cross-cycle performance and greater predictability in our business. Second, we are enabling more efficient, scalable, high-volume manufacturing of our Ichor Holdings, Ltd.-branded products, which will get us to our cost targets for these components. Third, by driving a higher level of Ichor Holdings, Ltd. content within the systems we build, we will deliver significant improvements in gross margin flow-through and earnings leverage as revenues ramp. We have made strong progress, and I am proud of the team, especially given the scale of the ramp we are operating in. Just a few months into the year, and we have already installed and qualified half of the plant equipment moves, which is ahead of schedule. We are now performing all manufacturing steps for a substrate product line within the same four walls within Mexico. These are the types of efficiency gains that will structurally improve our product margins and drive higher gross margin flow-through within the gas panel manufacturing business. In our valve product line, in Q1, we achieved full customer qualification to manufacture in Mexico. This significantly expands our capacity for this product line, enabling us to source internally and cut our dependence on outside suppliers. We will continue to ramp up capacity through Q2 and expect to be at full production as we exit the quarter. The success and speed of both the moves and qualifications gives us the confidence to reinitiate valve qualifications at one of our major customers, which we had placed on hold due to capacity constraints. As we exit Q2, we will begin to see the gross margin impacts of our footprint realignment, with these moves enabling increased levels of proprietary Ichor Holdings, Ltd. content in the gas panels we make. As we move through the remainder of the year, we will be ramping Malaysia, which will drive a richer mix of machining revenues. Driving higher volumes of machining revenues and completing cost reduction in our footprint realignment are the final two steps in achieving our near-term gross margin targets of at least 15%. As a reminder, while we complete the ramp up of Mexico, we are temporarily increasing external supply to ensure strong, consistent delivery in our integration business. Taking all of this into account, today, we are guiding Q2 revenues of approximately $300 million, plus or minus $10 million, and sequential improvement in gross margin from Q1 to an expected range of 13% to 14%. Beyond Q2, we continue to expect approximately 100 basis points per quarter in gross margin expansion as we complete our transitions into the second half. This level of gross margin expansion continues to support our expectation that gross profit dollars will grow around twice the rate of revenues as we move through the second half. To close, we have made significant progress on our strategic initiatives, and all within a backdrop of rapidly growing demand. We remain confident that Ichor Holdings, Ltd. is well positioned to capitalize on the ramp and deliver strong earnings leverage through this cycle. With that, I will now hand it off to Greg.

Thanks, Phil. Before I begin, I would like to emphasize that the P&L metrics discussed today are non-GAAP measures. These measures exclude the impact of share-based compensation, amortization of acquired intangible assets, nonrecurring charges, and discrete tax items and adjustments. There is a useful financial supplement available on the investor section of our website that summarizes our GAAP and non-GAAP financial results, as well as a summary of the balance sheet and cash flow information for the last several quarters. First quarter revenues of $256.1 million came in at the upper end of our guidance range, up 15% sequentially, reflecting continued demand momentum and strong execution as volumes ramped through the quarter. Gross margin increased to 12.8%, up 110 basis points sequentially and 30 basis points above the midpoint of guidance, driven primarily by incremental factory leverage on the higher revenue levels in our integration business. Operating expenses in the quarter were aligned with our forecast at $24.1 million. As a result, operating income for Q1 more than tripled compared to Q4, to $8.7 million or 3.4% of revenue, demonstrating meaningful operating leverage as volumes ramped. With both interest and tax aligned with expectations, earnings for the quarter were near the high end of guidance at $0.15 per diluted share based on 35.3 million diluted shares outstanding. Positive cash flow generation from the P&L increased significantly in the quarter, with EBITDA of nearly $14 million. In the early stages of what we expect will be a sustained multiyear ramp, we are making incremental investments in inventory in support of our customers. As a result, cash from operations was a use of $2.9 million. Capital expenditures for the quarter were $7.1 million. We are managing our CapEx investments towards approximately 3% of revenue, so we would expect this CapEx level to trend up modestly as we move into the second half of the year. Which brings us to the balance sheet. Given our current levels of investments in inventory and CapEx, cash and equivalents totaled $89.1 million at the end of the quarter, a decrease of $9.2 million from Q4. DSOs increased modestly to 33 days, and inventory turns improved to 3.7, reflecting improved throughput as volumes increased. Total debt at quarter end was $122 million and our net debt coverage ratio stands at 1.6. Now turning to our guidance for 2026. As Phil mentioned, we are anticipating a steeper revenue ramp for Q2 compared to our expectations a quarter ago. We anticipate revenues in the range of $290 million to $310 million, which at the midpoint represents sequential growth of 17% and a year-over-year increase in revenue volumes of 25%. Our gross margin guidance for Q2 is a range of 13% to 14%, and as Phil noted earlier, we continue to expect gross margin improvement of 100 basis points per quarter through 2026. Our guidance for operating expenses this year is largely unchanged from last quarter. We continue to drive disciplined cost management across the organization in support of higher revenue volumes, and we are managing to a target of only 5% to 6% OpEx growth for the full year. This reflects a relatively consistent run rate of approximately $25 million beginning in Q2, slightly up from Q1's level as a result of higher variable compensation forecast on the improved outlook for the year. The midpoint of our guidance for revenues, gross margin, and operating expenses in the current quarter indicate the highest level of operating income reported since fiscal 2022 and an increase of nearly 80% from Q1, reinforcing the strong earnings leverage expected as we continue to ramp revenues. Our expectations for interest and tax this year are unchanged since last quarter. We anticipate approximately $2 million per quarter in total interest and other income and expense, and our assumed effective tax rate continues to be in the range of 20% to 25%. Finally, our EPS range for Q2 of $0.25 to $0.35 reflects our expectation for a diluted share count of 35.5 million shares. In summary, Q1 reflects improving profitability, strong operating leverage, and disciplined cost control as volumes accelerate, and we believe we are well positioned for continued progress through the remainder of 2026. Operator, we are now ready for questions. Please open the line.

We will now open the call for questions. Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, you may press star 2 if you would like to remove your question from the queue. The first question is from Brian Edward Chin from Stifel. Please go ahead.

Hi there. Good afternoon. Thanks for letting us ask a couple of questions. First question, impressive job in terms of the sequential growth in Q1 and then the outlook. You maintain sort of mid to high teens sequential ramp at this point. Phil, maybe can you walk us through some of the puts and takes in the second half of the year in terms of ramping Malaysia, in terms of product mix, and how that distills down to what level you can sustain sequential growth into the back half of the year?

Yeah. If you follow our customers, they are forecasting, say, a 25% growth year-on-year. We are going to project that at this point in terms of how much we think we are going to grow for 2026 over 2025. What I would say is at this point last quarter, I would have guided lower guidance for Q2, and now we are guiding $290 million to $310 million. So as you can imagine, we are seeing a lot of growth, a lot of movement, and a lot of puts and takes, if you will. We are seeing a lot of movement in our forecast, and I would say my visibility today is stronger than it was a quarter ago, and it will be stronger, I believe, a quarter from now than it is today.

Great, that is helpful. Then thinking about the gross margin progression in the back half of the year, when you think about the 100 basis points in Q3 and 100 basis points in Q4, can you walk through how much of that is volume-related and how much is mix inclusive of increased vertical content?

In terms of percentages, I would say, in general, think of our gross margin growth as coming from events as much as from volume. I talked about the global footprint realignment. That is a big driver of our cost savings as well as our margin accretion as we move through the year. So I would say they are pretty close to equally weighted in terms of gross margin impact. Volume leverage is about 50% of it, and our cost reductions are about 50% of it.

The next question is from Craig Andrew Ellis from B. Riley Securities. Please go ahead.

Yes, thanks for taking the questions, and congratulations on the good results and guidance. Phil, I wanted to start with more of a qualitative question on where Brian left off. So it was the beginning of the year when you outlined a four-point plan to really drive much better gross margins to 15%, and it sure seems like the business is solidly on track for that. But can you talk about how happy you are with where you see the business executing in the different company-controllable areas that you are focused on? Where are you happier, and where do you need to get better performance to be really confident in that 100 basis points per quarter in the back half of the year?

I would say that, in general, I am very happy with the progress the team is making. We are on track, if not ahead of schedule, in most of the initiatives. That is tough to do in this type of environment, obviously, as we are ramping up revenues at the same time as doing a strategic transformation. It is very impressive for me to see the team really execute at this level. If you looked at where I had risk in terms of the transformation in the Q1 time frame, it was getting customer qualifications in Mexico, and it was getting e-beam welding up and running in Mexico. Both of those are behind us. So I am in a much more confident position than I would have said about a quarter ago.

That is really helpful. And then just looking ahead to what sounds like a really strong view for the second half of the year, and I think most everybody is really constructive for robust calendar 2027 year-on-year growth. Can you talk about your comfort with capacity upside beyond the level that you are guiding to in the second quarter so we can get comfortable that as demand continues to improve, Ichor Holdings, Ltd. is going to be able to meet that demand?

I would say that the two major drivers or pacers for our output right now would be supply chain, number one, and labor headcount, number two. We are well positioned brick-and-mortar-wise and clean room-wise and infrastructure-wise, which to me are the long-lead items. From a supply chain standpoint, we have boots on the ground; there are always multiple suppliers that pop up in these types of ramp periods. We have boots on the ground as well as increased inventory levels in certain areas where we saw risk, so I feel pretty good about that. In terms of ramping up headcount, we are well along the path. I feel very good about where we are in terms of headcount as well. In terms of brick and mortar, headroom, and room for us to grow, we could more than double what we did last year. I am not worried there. Once again, it is going to be headcount and supply chain that will pace us going forward. Thank you.

The next question is from Christian David Schwab from Craig-Hallum Capital Group. Please go ahead.

Great, thanks for taking my question. Just a follow-up on that last statement. In aggregate, do you believe that you have the potential, if the end-market demand remains robust as expected in a multiyear basis, to have roughly $1.8 billion to $2 billion in revenue capacity on a yearly basis given your global realignment in manufacturing? Did I hear that correctly? And congrats on the gross margin progression expected throughout the course of the year. As you increase your branded or vertically integrated products into your end boxes, do you have yet an aspirational goal of where you would like to end gross margins at the end of 2027? And lastly, after such a very strong start in the first half of the year, with 17% sequential growth guidance at the midpoint from March to June, would you expect double-digit sequential growth as we go forward, or would you assume that could potentially be more high single digit?

From a brick-and-mortar and fixtures-and-equipment standpoint, we have some areas where we need to make investments. There is some equipment in the second half of the year that we are going to be positioning to grow to those types of levels, but the long-lead items like clean room, overhead, building space, brick and mortar—we are in a very good position there, especially with our new facility in Malaysia that we turned on last quarter. We have not drawn out the model to the end of 2027 at this point. It is a little bit early to do that. As we enter 2026, it is a little early to guide 2027 because a lot of that is going to be volume-driven as you know. I do expect 2027 to be a growth year, but even with that, I am going to be a little bit shy on guiding 2027 at this point. We could see double-digit growth in the second half in total. At this point, it is going to be our supply chain that is really going to gate us in terms of revenue growth. I am a little bit cautious on the second half until we have good visibility there. But we are executing really well. That is why we are seeing a very big pickup in Q2. We are not leaving a lot of revenue behind; we are not rolling a lot of revenue from quarter to quarter. That is going to show a growth profile that kind of leads our customers because we deliver before our customers receive.

The next question is from Charles Shi from Needham & Company. Please go ahead.

Hi, thanks for taking my question, Phil and Greg. First, congrats on the very strong Q2 guide. A lot of people are going to ask you what your max capacity is right now. I think you previously mentioned potentially getting to 20% gross margin at $400 million per quarter. To me, that implies maybe $1.6 billion capacity. I do not know if you need incremental CapEx to get to that, but what is the thought on getting beyond $1.6 billion capacity? What would be the next milestone, and how much CapEx do you think you are going to need? And is it fair to say that to get to $1.6 billion, the capacity is already in place, and it is more about above $2 billion that you are going to need more equipment?

Let me be clear that we believe we have enough brick-and-mortar capacity today to go well above $2 billion. After that, it becomes very driven by equipment. If you look at the Ichor Holdings, Ltd.-branded products, there is a lot of equipment required to build those. That would be the one area where we would need to invest CapEx. That is what we have alluded to when we said it is going to be second-half CapEx heavy. That is coming in as we fill out the machining capability within Malaysia. But as Greg talked about during his prepared remarks, we are really driving towards about 3% of revenue CapEx.

For this year? For this year.

In order to keep the 35% to 75% Ichor Holdings, Ltd.-branded content within a $1.6 billion run rate, we need a little more equipment. From a brick and mortar, overhead, and clean room perspective, we are well positioned for that to be around $2 billion.

Got it. May I ask about the demand signal? When you talk about Q2, you are talking about unconstrained demand already above $300 million. What kind of visibility do you have right now? How much are hard commits already from your customers? How many quarters can you see that, and where do you see the end of your visibility as we speak right now?

I always say that we have good visibility for about six months. We have hard PO coverage for about a full quarter and about six months of great visibility. Our customers give us soft guidance past that. Right now, as they have signaled to you, they are signaling growth into 2027. So we are preparing ourselves to capitalize on that growth into 2027.

Next question is from Krish Sankar from TD Cowen. Please go ahead.

Hi, this is Rob Mertens on the line for Krish. Thanks for taking my questions and congrats on the strong quarter and guidance. First, I will piggyback on Charles’ question and ask if there are any changes in your view in terms of silicon carbide demand or from aerospace and defense customers compared to a quarter ago. And then, on the strength you are seeing from your largest customers, you mentioned visibility has improved and that sales should grow sequentially through the back half of the year. Would you expect the mix to shift toward more of your high-margin components and in-sourced products through the back half, or could there be some near-term impact due to the high growth of the gas panels this year?

Aerospace and defense are growing very well. Unfortunately, conflicts drive increased need for defense spending, so we are seeing some impacts of that. Our commercial space business is also growing. A lot of the R&D work that we were doing for that commercial space business is now converting into hard POs, so we are seeing strong growth through this quarter. Silicon carbide is pretty light; we are not seeing a major return in that as we speak today. It has been steadily down since last year. Regarding mix, the reason we will see growth in gross margin sequentially from quarter to quarter is that we are going to be able to ramp up and fulfill more of our own internal sourced parts, a higher percentage of those. As we move into the second half of the year, I expect to fulfill more of our Ichor Holdings, Ltd.-branded products within the gas boxes that we build. That will be a good tailwind as we get into the second half of the year. That is predicated on ramping up our global footprint realignment and what we are doing in Mexico and Malaysia, which we expect to be fully running in the second half of the year.

The next question is from Edward Yang from Oppenheimer. Please go ahead.

Phil, thanks for the time. The first question is more of a clarification. Did you say that you expect 2026 year-over-year revenue growth of 25%? If that is the case, that would imply a bit less than double-digit growth in the second half, but just wanted to clarify that. And given that the industry is supply constrained, are you pretty much set in terms of your 2026 growth outlook, or are there still bottlenecking opportunities that could provide you revenue upside? And finally, on your innovation pipeline, could you speak to any new product or module wins beyond upcycle opportunities?

We are definitely looking at double-digit sequential growth in the second half of the year for sure. There are definitely bottlenecking opportunities that can give us revenue upside. We are seeing some constraints and some noise in the supply chain as we move from Q1 into Q2, but we have a good handle on it. We are well positioned in terms of inventory in order for us to execute, and we have been executing at a high level for our customers. On innovation, we are making great progress in flow control. A ramp like this is the perfect opportunity to get qualified. Some of the constraints we are running into happen to be in the flow control space. There is an open window for us to capture share, and we need to be ready and available for that window of opportunity.

There are no further questions at this time. I would like to turn the floor back over to Philip Barros for closing comments.

Thank you, operator, and thank you, everyone, for joining our call today. I want to once again thank our employees who are taking on this ramp and the strategic transformation all at the same time, executing at a very high level. I have complete faith in the team's ability to execute and could not be more proud to be leading this team along this journey. You can feel the momentum and the energy within Ichor Holdings, Ltd. I look forward to our next update on our Q2 call in August. In the meantime, please reach out to Claire to arrange any follow-up requests for meetings. Operator, you may conclude the call.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.