Ichor Holdings, Ltd 10-Q for FY2023 Q1
Ichor Holdings, Ltd. (ICHR)
10-Q
2023-05-10
For: 2023-03-31
View Original
Added on
April 04, 2026
About this 10-Q
Ichor Holdings, Ltd filed this 10-Q on May 10, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).
Headline figures
Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $225.87M
- down 22.9% from $293.15M a year earlier
- Net loss
- $5000
- compared with net income of $8.04M a year earlier
- Diluted EPS
- $0.00
- compared with $0.28 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 31, 2023
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from __ to __
Commission File Number: 001-37961
_________________________________________________________________________________________________________________________
(Exact Name of Registrant as Specified in its Charter)
_________________________________________________________________________________________________________________________
| Not Applicable | ||||||||
| ( State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
Registrant’s telephone number, including area code: (510 ) 897-5200
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
| x | Accelerated filer | o | ||||||||||||
| Non‑accelerated filer | o | Small reporting company | ||||||||||||
| Emerging Growth Company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes o No x
As of May 5, 2023, the registrant had 29,055,904 ordinary shares, $0.0001 par value per share, outstanding.
TABLE OF CONTENTS
PART I
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ICHOR HOLDINGS, LTD.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(unaudited)
| March 31, 2023 | December 30, 2022 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Other noncurrent assets | |||||||||||
| Deferred tax assets, net | |||||||||||
| Intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Shareholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued liabilities | |||||||||||
| Other current liabilities | |||||||||||
| Current portion of long-term debt | |||||||||||
| Current portion of lease liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, less current portion, net | |||||||||||
| Lease liabilities, less current portion | |||||||||||
| Deferred tax liabilities, net | |||||||||||
| Other non-current liabilities | |||||||||||
| Total liabilities | |||||||||||
| Shareholders’ equity: | |||||||||||
Preferred shares ($ | |||||||||||
Ordinary shares ($ | |||||||||||
| Additional paid in capital | |||||||||||
Treasury shares at cost ( | ( | ( | |||||||||
| Retained earnings | |||||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
ICHOR HOLDINGS, LTD.
Consolidated Statements of Operations
(in thousands, except share and per share amounts)
(unaudited)
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2023 | April 1, 2022 | ||||||||||||||||||||||
| Net sales | $ | $ | |||||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Selling, general, and administrative | |||||||||||||||||||||||
| Amortization of intangible assets | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||
| Other expense, net | |||||||||||||||||||||||
| Income (loss) before income taxes | ( | ||||||||||||||||||||||
| Income tax expense (benefit) | ( | ||||||||||||||||||||||
| Net income (loss) | $ | ( | $ | ||||||||||||||||||||
| Net income (loss) per share | |||||||||||||||||||||||
| Basic | $ | $ | |||||||||||||||||||||
| Diluted | $ | $ | |||||||||||||||||||||
| Shares used to compute Net income (loss) per share: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
ICHOR HOLDINGS, LTD.
Consolidated Statements of Shareholders’ Equity
(in thousands, except share amounts)
(unaudited)
| For the three months ending March 31, 2023 | Ordinary Shares | Additional Paid-In Capital | Treasury Shares | Retained Earnings | Total Shareholders' Equity | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||
| Balance at December 30, 2022 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||
| Ordinary shares issued from exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Ordinary shares issued from vesting of restricted share units | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||
| Ordinary shares issued from employee share purchase plan | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||
| For the three months ending April 1, 2022 | Ordinary Shares | Additional Paid-In Capital | Treasury Shares | Retained Earnings | Total Shareholders' Equity | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||
| Ordinary shares issued from exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Ordinary shares issued from vesting of restricted share units | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Balance at April 1, 2022 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
ICHOR HOLDINGS, LTD.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Three Months Ended | |||||||||||
| March 31, 2023 | April 1, 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | ( | $ | ||||||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Share-based compensation | |||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Amortization of debt issuance costs | |||||||||||
| Changes in operating assets and liabilities, net of acquisitions: | |||||||||||
| Accounts receivable, net | ( | ||||||||||
| Inventories | ( | ||||||||||
| Prepaid expenses and other assets | ( | ||||||||||
| Accounts payable | ( | ( | |||||||||
| Accrued liabilities | ( | ||||||||||
| Other liabilities | ( | ( | |||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Issuance of ordinary shares under share-based compensation plans | |||||||||||
| Employees' taxes paid upon vesting of restricted share units | ( | ( | |||||||||
| Repayments on term loan | ( | ( | |||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
| Net decrease in cash | ( | ( | |||||||||
| Cash at beginning of period | |||||||||||
| Cash at end of period | $ | $ | |||||||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Cash paid during the period for interest | $ | $ | |||||||||
| Cash paid during the period for taxes, net of refunds | $ | $ | |||||||||
| Supplemental disclosures of non-cash activities: | |||||||||||
| Capital expenditures included in accounts payable | $ | $ | |||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities, including those acquired through acquisitions | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
ICHOR HOLDINGS, LTD.
Notes to Consolidated Financial Statements
(dollar figures in tables in thousands, except per share amounts)
(unaudited)
| Note 1 – Basis of Presentation and Selected Significant Accounting Policies | ||
Basis of Presentation
These consolidated unaudited financial statements have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”). All intercompany balances and transactions have been eliminated upon consolidation. All dollar figures presented in tables in the notes to consolidated financial statements are in thousands, except per share amounts. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted as permitted by the SEC's rules and regulations for interim reporting. These consolidated financial statements should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10‑K for the year ended December 30, 2022.
Year End
We use a 52- or 53-week fiscal year ending on the last Friday in December. Our fiscal years ending December 29, 2023 and December 30, 2022 each are 52 weeks. References to 2023 and 2022 relate to the fiscal years then ended. The three-month periods ended March 31, 2023 and April 1, 2022 each are 13 weeks. References to the first quarter of 2023 and 2022 relate to the three-month periods then ended.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods presented. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results could differ from the estimates made by management. Significant estimates include inventory valuation and impairment analysis for both definite‑lived intangible assets and goodwill.
Cash and Cash Equivalents
Cash and cash equivalents consist of deposits and financial instruments which are readily convertible into cash and have original maturities of 90 days or less at the time of acquisition.
Fair Value of Financial Instruments
The carrying values of our financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities, and long-term debt, net of unamortized debt issuance costs, approximate fair value.
5
Revenue Recognition
We recognize revenue when control of promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. This amount is recorded as net sales in our consolidated statements of operations.
Transaction price – In most of our contracts, prices are generally determined by a customer-issued purchase order and generally remain fixed over the duration of the contract. Certain contracts contain variable consideration, including early-payment discounts and rebates. When a contract includes variable consideration, we evaluate the estimate of the variable consideration to determine whether the estimate needs to be constrained; therefore, we include the variable consideration in the transaction price only to the extent that it is probable that a significant reversal will not occur. Variable consideration estimates are updated at each reporting date. Historically, we have not incurred significant costs to obtain a contract. All amounts billed to a customer relating to shipping and handling are classified as net sales, while all costs incurred by us for shipping and handling are classified as cost of sales.
Performance obligations – Substantially all of our performance obligations pertain to promised goods (“products”), which are primarily comprised of fluid delivery subsystems, weldments, and other components. Most of our contracts contain a single performance obligation and are generally completed within twelve months . Product sales are recognized at a point-in-time, generally upon delivery, as such term is defined within the contract, as that is when control of the promised good has transferred. Products are covered by a standard assurance warranty, generally extended for a period of to two years depending on the customer, which promises that delivered products conform to contract specifications. As such, we account for such warranties under ASC 460, Guarantees, and not as a separate performance obligation.
Contract balances – Accounts receivable represents our unconditional right to receive consideration from our customers. Accounts receivable are carried at invoice price less an estimate for doubtful accounts and estimated payment discounts. Payment terms vary by customer but are generally due within 15 -60 days. Historically, we have not incurred significant payment issues with our customers. We had no significant contract assets or liabilities on our consolidated balance sheets in any of the periods presented.
Accounting Pronouncements Recently Adopted
In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2021‑08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. We adopted the ASU on the first day of 2023 and it did not have a material impact on our consolidated financial statements.
Note 2 – Inventories | ||
Inventories consist of the following:
| March 31, 2023 | December 30, 2022 | ||||||||||
| Raw materials | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Excess and obsolete adjustment | ( | ( | |||||||||
| Total inventories | $ | $ | |||||||||
6
| Note 3 – Property and Equipment and Other Noncurrent Assets | ||
Property and equipment consist of the following:
| March 31, 2023 | December 30, 2022 | ||||||||||
| Machinery | $ | $ | |||||||||
| Leasehold improvements | |||||||||||
| Computer software, hardware, and equipment | |||||||||||
| Office furniture, fixtures, and equipment | |||||||||||
| Vehicles | |||||||||||
| Construction-in-process | |||||||||||
| Less accumulated depreciation | ( | ( | |||||||||
| Total property and equipment, net | $ | $ | |||||||||
Depreciation expense was $4.3 million and $4.0 million for the first quarter of 2023 and 2022, respectively.
Cloud Computing Implementation Costs
We capitalize implementation costs associated with hosting arrangement that are service contracts. These costs are recorded to prepaid expenses or other noncurrent assets. To-date, these costs are those incurred to implement a new company-wide ERP system. The balance of capitalized cloud computing implementation costs, net of accumulated amortization, was $11.4 million and $11.6 million as of March 31, 2023 and December 30, 2022, respectively, and is included in other assets on our consolidated balance sheets. The related amortization expense was $0.2 million and $0.2 million during the first quarter of 2023 and 2022, respectively, and is included in selling, general, and administrative expense on our consolidated statements of operations.
| Note 4 – Intangible Assets | ||
Definite‑lived intangible assets consist of the following:
| March 31, 2023 | |||||||||||||||||||||||||||||
| Gross value | Accumulated amortization | Accumulated impairment charges | Carrying amount | Weighted average useful life | |||||||||||||||||||||||||
| Customer relationships | ( | — | |||||||||||||||||||||||||||
| Developed technology | ( | — | |||||||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | $ | — | $ | |||||||||||||||||||||||
| December 30, 2022 | |||||||||||||||||||||||||||||
| Gross value | Accumulated amortization | Accumulated impairment charges | Carrying amount | Weighted average useful life | |||||||||||||||||||||||||
| Customer relationships | ( | — | |||||||||||||||||||||||||||
| Developed technology | ( | — | |||||||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | $ | — | $ | |||||||||||||||||||||||
7
| Note 5 – Leases | ||
Operating lease right-of-use (“ROU”) assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. For purposes of calculating operating lease ROU assets and operating lease liabilities, we use the non-cancelable lease term plus options to extend that we are reasonably certain to take. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Our leases generally do not provide an implicit rate. As such, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
We lease facilities under various non-cancelable operating leases expiring through 2031 . In addition to base rental payments, we are generally responsible for our proportionate share of operating expenses, including facility maintenance, insurance, and property taxes. As these amounts are variable, they are not included in lease liabilities.
The components of lease expense are as follows:
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2023 | April 1, 2022 | ||||||||||||||||||||||
| Operating lease cost | $ | $ | |||||||||||||||||||||
Supplemental cash flow information related to leases is as follows:
| Three Months Ended | |||||||||||
| March 31, 2023 | April 1, 2022 | ||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | $ | $ | |||||||||
Supplemental balance sheet information related to leases is as follows:
| March 31, 2023 | December 30, 2022 | ||||||||||
| Weighted-average remaining lease term of operating leases | |||||||||||
| Weighted-average discount rate of operating leases | |||||||||||
Future minimum lease payments under non-cancelable leases are as follows as of March 31, 2023:
| 2023, remaining | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| Total future minimum lease payments | |||||
| Less imputed interest | ( | ||||
| Total lease liabilities | $ | ||||
8
| Note 6 – Income Taxes | ||
Income tax information for the periods reported is as follows:
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2023 | April 1, 2022 | ||||||||||||||||||||||
| Income tax expense (benefit) | $ | ( | $ | ||||||||||||||||||||
| Income (loss) before income taxes | $ | ( | $ | ||||||||||||||||||||
| Effective income tax rate | % | % | |||||||||||||||||||||
Our effective tax rates for the three months ended March 31, 2023 and April 1, 2022 differ from the statutory rate primarily due to taxes on foreign income that differ from the U.S. tax rate, including a tax holiday in Singapore. Our effective tax rate of 99.1 % for the first quarter of 2023 is primarily due to projected pre-tax loss in the U.S. for 2023, which generates tax benefits, partially offset by projected pre-tax income in Singapore, our primary source of non-U.S. pre-tax income and for which we participate in a tax holiday through 2026.
The ending balance for the unrecognized tax benefits for uncertain tax positions was approximately $4.5 million at March 31, 2023. The related interest and penalties were insignificant. The uncertain tax positions that are reasonably possible to decrease in the next twelve months are insignificant.
As of March 31, 2023, we were under examination by the Inland Revenue Board of Malaysia for the years 2016 to 2020.
Note 7 – Employee Benefit Programs | ||
401(k) Plan
We sponsor a 401(k) plan available to employees of our U.S.‑based subsidiaries. Participants may make salary deferral contributions not to exceed 50 % of a participant’s annual compensation or the maximum amount otherwise allowed by law. Eligible employees receive a discretionary matching contribution equal to 50 % of a participant’s deferral, up to an annual matching maximum of 4 % of a participant’s annual compensation. Matching contributions were $0.9 million and $1.0 million for the first quarter of 2023 and 2022, respectively.
Note 8 – Long-Term Debt | ||
Long‑term debt consists of the following:
| March 31, 2023 | December 30, 2022 | ||||||||||
| Term loan | $ | $ | |||||||||
| Revolving credit facility | |||||||||||
| Total principal amount of long-term debt | |||||||||||
| Less unamortized debt issuance costs | ( | ( | |||||||||
| Total long-term debt, net | |||||||||||
| Less current portion | ( | ( | |||||||||
| Total long-term debt, less current portion, net | $ | $ | |||||||||
On October 29, 2021, we entered into an amended and restated credit agreement, which includes a group of financial institutions as direct lenders underlying the agreement. The credit agreement includes a $150.0 million term loan facility and a $250.0 million revolving credit facility (together, “credit facilities”). Term loan principal payments of $1.9 million are due on a quarterly basis. The credit facilities mature on October 29, 2026.
9
Note 9 – Share‑Based Compensation | ||
The 2016 Omnibus Incentive Plan (the “2016 Plan”) provides for grants of share‑based awards to employees, directors, and consultants. Awards may be in the form of stock options (“options”), tandem and non‑tandem stock appreciation rights, restricted share awards or restricted share units (“RSUs”), performance awards, and other share‑based awards. Forfeited or expired awards are returned to the incentive plan pool for future grants. Awards generally vest over four years , 25 % on the first anniversary of the date of grant and quarterly thereafter over the remaining 3 years. Upon vesting of RSUs, shares are withheld to cover statutory minimum withholding taxes. Shares withheld are not reflected as an issuance of ordinary shares within our consolidated statements of shareholders’ equity, as the shares were never issued, and the associated tax payments are reflected as financing activities within our consolidated statements of cash flows.
Share‑based compensation expense across all plans for options, RSUs, and employee share purchase rights was $3.6 million and $2.9 million for the first quarter of 2023 and 2022.
Stock Options
The following table summarizes option activity:
| Number of Stock Options | |||||||||||||||||||||||
| Service condition | Weighted average exercise price per share | Weighted average remaining contractual term | Aggregate intrinsic value | ||||||||||||||||||||
| Outstanding, December 30, 2022 | $ | ||||||||||||||||||||||
| Granted | $ | ||||||||||||||||||||||
| Exercised | ( | $ | |||||||||||||||||||||
| Forfeited or expired | ( | $ | |||||||||||||||||||||
| Outstanding, March 31, 2023 | $ | $ | |||||||||||||||||||||
| Exercisable, March 31, 2023 | $ | $ | |||||||||||||||||||||
Restricted Share Units
The following table summarizes RSU activity:
| Number of Restricted Share Units | |||||||||||||||||||||||
| Service condition | Performance condition | Market condition | Weighted average grant-date fair value per share | ||||||||||||||||||||
| Unvested, December 30, 2022 | $ | ||||||||||||||||||||||
| Granted | $ | ||||||||||||||||||||||
| Vested | ( | — | — | $ | |||||||||||||||||||
| Forfeited | ( | — | — | $ | |||||||||||||||||||
| Unvested, March 31, 2023 | $ | ||||||||||||||||||||||
10
Employee Share Purchase Plan
The 2017 Employee Stock Purchase Plan (the “2017 ESPP”) grants employees the ability to designate a portion of their base-pay to purchase ordinary shares at a price equal to 85 % of the fair market value of our ordinary shares on the first or last day of each 6 month purchase period. Purchase periods begin on January 1 or July 1 and end on June 30 or December 31, or the next business day if such date is not a business day. Shares are purchased on the last day of the purchase period.
As of March 31, 2023, approximately 2.2 million ordinary shares remain available for purchase under the 2017 ESPP.
Note 10 – Earnings per Share | ||
The following table sets forth the computation of basic and diluted earnings per share and a reconciliation of the numerator and denominator used in the calculation:
| Three Months Ended | |||||||||||
| March 31, 2023 | April 1, 2022 | ||||||||||
| Numerator: | |||||||||||
| Net income (loss) | $ | ( | $ | ||||||||
| Denominator: | |||||||||||
| Basic weighted average ordinary shares outstanding | |||||||||||
| Dilutive effect of options | |||||||||||
| Dilutive effect of RSUs | |||||||||||
| Dilutive effect of ESPP | |||||||||||
| Diluted weighted average ordinary shares outstanding | |||||||||||
| Securities excluded from the calculation of diluted weighted average ordinary shares outstanding (1) | |||||||||||
| Net income (loss) per share: | |||||||||||
| Basic | $ | $ | |||||||||
| Diluted | $ | $ | |||||||||
(1)Represents potentially dilutive options and RSUs excluded from the calculation of diluted weighted average ordinary shares outstanding, because including them would have been antidilutive under the treasury stock method.
Note 11 – Segment Information | ||
Our Chief Operating Decision Maker, the Chief Executive Officer, reviews our results of operations on a consolidated level and executive staff is structured by function rather than by product category. Additionally, key resources, decisions, and assessment of performance are analyzed at a company‑wide level. Therefore, we operate in one operating segment.
Foreign operations are conducted primarily through our wholly owned subsidiaries in Singapore and Malaysia, and to a lesser degree, Scotland, Korea, and Mexico. Our principal markets include North America, Asia, and to a lesser degree, Europe.
11
Sales by geographic area represents sales to unaffiliated customers based upon the location to which the products were shipped. The following table sets forth sales by geographic area:
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2023 | April 1, 2022 | ||||||||||||||||||||||
| United States of America | $ | $ | |||||||||||||||||||||
| Singapore | |||||||||||||||||||||||
| Europe | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total net sales | $ | $ | |||||||||||||||||||||
Foreign long-lived assets, exclusive of deferred tax assets, were $52.5 million and $52.8 million at March 31, 2023 and December 30, 2022, respectively.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Concerning Forward-Looking Statements | ||
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. You should not place undue reliance on these statements. All statements other than statements of historical fact included in this report are forward-looking statements. These statements relate to analyses and other information, which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. These forward-looking statements are identified by the use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will” and similar terms and phrases, including references to assumptions. However, these words are not the exclusive means of identifying such statements. These statements are contained in many sections of this report, including those in Part I – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that we will achieve those plans, intentions or expectations. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, include economic downturns and market conditions beyond our control, including periods of inflation, slower growth or recession, changes to fiscal and monetary policy, higher interest rates, currency fluctuations, challenges in the supply chain, export restrictions, and any disruptions in European economies as a result of the conflict in Ukraine; the quality of global financial markets; our dependence on expenditures by manufacturers in the semiconductor capital equipment industry; our reliance on a very small number of original equipment manufacturer customers for a significant portion of our sales; our customers’ significant negotiating leverage; competition in our industry; and other factors set forth in this report, and those set forth in Part I – Item 1A. Risk Factors of our 2022 Annual Report on Form 10‑K and our other filings with the Securities and Exchange Commission (“SEC”). All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements contained in Part I – Item 1A. Risk Factors to our 2022 Annual Report on Form 10-K, as well as other cautionary statements that are made from time to time in our other filings with the SEC and public communications. You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties.
We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated unaudited financial statements and related notes included elsewhere in this report.
Overview | ||
We are a leader in the design, engineering, and manufacturing of critical fluid delivery subsystems and components for semiconductor capital equipment. Our product offerings include gas and chemical delivery systems and subsystems, collectively known as fluid delivery systems and 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 systems and subsystems precisely blend and dispense the reactive liquid chemistries used in semiconductor manufacturing processes such as chemical-mechanical planarization, electroplating, and cleaning. We also provide precision-machined components, weldments, e‑beam and laser-welded components, precision vacuum and hydrogen brazing and surface treatment technologies, and other proprietary products. This vertically integrated portion of our business is primarily focused on metal and plastic parts that are used in gas and chemical systems, respectively.
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Fluid delivery subsystems ensure accurate measurement and uniform delivery of specialty gases and chemicals at critical steps in the semiconductor manufacturing processes. Any malfunction or material degradation in fluid delivery reduces yields and increases the likelihood of manufacturing defects in these processes. Most OEMs outsource all or a portion of the design, engineering, and manufacturing of their gas delivery subsystems to a few specialized suppliers, including us. Additionally, many OEMs are outsourcing the design, engineering, and manufacturing of their chemical delivery subsystems due to the increased fluid expertise required to manufacture these subsystems. Outsourcing these subsystems has allowed OEMs to leverage the suppliers’ highly specialized engineering, design, and production skills while focusing their internal resources on their own value-added processes. We believe that this outsourcing trend has enabled OEMs to reduce their costs and development time, as well as provide growth opportunities for specialized subsystems suppliers like us.
We have a global footprint with production facilities in California, Minnesota, Oregon, Texas, Singapore, Malaysia, the United Kingdom, Korea, and Mexico.
The following table summarizes key financial information for the periods indicated. Amounts are presented in accordance with GAAP unless explicitly identified as being a non-GAAP metric. For a description of our non-GAAP metrics and reconciliations to the most comparable GAAP metrics, please refer below to the section entitled Non-GAAP Financial Results within this report.
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2023 | April 1, 2022 | ||||||||||||||||||||||
| (dollars in thousands, except per share amounts) | |||||||||||||||||||||||
| Net sales | $ | 225,870 | $ | 293,146 | |||||||||||||||||||
| Gross margin | 14.7 | % | 15.0 | % | |||||||||||||||||||
| Non-GAAP gross margin | 15.5 | % | 16.0 | % | |||||||||||||||||||
| Operating margin | 2.1 | % | 3.6 | % | |||||||||||||||||||
| Non-GAAP operating margin | 6.1 | % | 8.4 | % | |||||||||||||||||||
| Net income (loss) | $ | (5) | $ | 8,039 | |||||||||||||||||||
| Non-GAAP net income | $ | 11,128 | $ | 20,178 | |||||||||||||||||||
| Diluted EPS | $ | 0.00 | $ | 0.28 | |||||||||||||||||||
| Non-GAAP diluted EPS | $ | 0.38 | $ | 0.70 | |||||||||||||||||||
Macroeconomic Conditions and Business Update | ||
In the first quarter of 2023, customer demand weakened due to overall reductions in spending for semiconductor capital equipment, the primary industry in which we operate. Many macroeconomic factors may have contributed to this reduced spending environment, including persistent levels of high inflation, higher interest rates, foreign currency rate fluctuations, supply chain disruptions, and reduced consumer confidence. Additionally, increased export controls for semiconductor-related goods and services shipped to China and delayed business investment in electronic memory capacity had varying levels of unfavorable consequences to our business.
To help mitigate these impacts and to better align our resources and cost structure with current and expected future levels of business, we initiated labor and other cost reduction initiatives starting in the fourth quarter of 2022 and continuing through the first quarter of 2023. As a result of these programs, we incurred severance charges of $1.1 million and $1.3 million in the fourth quarter of 2022 and first quarter of 2023, respectively. While challenging macroeconomic conditions have impacted our business and customers in the near-term, we believe demand for semiconductors, semiconductor equipment, and our products will return to growth and expect healthy long-term industry growth in the future.
Additionally, increased borrowing rates due to tightening monetary policy have increased our debt-service costs, as the interest on our outstanding indebtedness is variable (refer above to Part I – Item 1. Financial Statements (Unaudited) – Note 8—Long-Term Debt). An analysis of the changes in our debt-service cost is provided below under the heading Comparison of the three months ended March 31, 2023 and April 1, 2022 – Interest expense, net.
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Results of Operations | ||
The following table sets forth our unaudited results of operations for the periods presented. The period‑to‑period comparison of results is not necessarily indicative of results for future periods.
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2023 | April 1, 2022 | ||||||||||||||||||||||
| (in thousands | |||||||||||||||||||||||
| Net sales | $ | 225,870 | $ | 293,146 | |||||||||||||||||||
| Cost of sales | 192,630 | 249,214 | |||||||||||||||||||||
| Gross profit | 33,240 | 43,932 | |||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | 4,313 | 4,851 | |||||||||||||||||||||
| Selling, general, and administrative | 20,167 | 23,267 | |||||||||||||||||||||
| Amortization of intangible assets | 3,966 | 5,349 | |||||||||||||||||||||
| Total operating expenses | 28,446 | 33,467 | |||||||||||||||||||||
| Operating income | 4,794 | 10,465 | |||||||||||||||||||||
| Interest expense, net | 4,550 | 1,532 | |||||||||||||||||||||
| Other expense, net | 784 | 84 | |||||||||||||||||||||
| Income (loss) before income taxes | (540) | 8,849 | |||||||||||||||||||||
| Income tax expense (benefit) | (535) | 810 | |||||||||||||||||||||
| Net income (loss) | $ | (5) | $ | 8,039 | |||||||||||||||||||
The following table sets forth our unaudited results of operations as a percentage of our total sales for the periods presented.
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2023 | April 1, 2022 | ||||||||||||||||||||||
| Net sales | 100.0 | 100.0 | |||||||||||||||||||||
| Cost of sales | 85.3 | 85.0 | |||||||||||||||||||||
| Gross profit | 14.7 | 15.0 | |||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | 1.9 | 1.7 | |||||||||||||||||||||
| Selling, general, and administrative | 8.9 | 7.9 | |||||||||||||||||||||
| Amortization of intangible assets | 1.8 | 1.8 | |||||||||||||||||||||
| Total operating expenses | 12.6 | 11.4 | |||||||||||||||||||||
| Operating income | 2.1 | 3.6 | |||||||||||||||||||||
| Interest expense, net | 2.0 | 0.5 | |||||||||||||||||||||
| Other expense, net | 0.3 | 0.0 | |||||||||||||||||||||
| Income (loss) before income taxes | (0.2) | 3.0 | |||||||||||||||||||||
| Income tax expense (benefit) | (0.2) | 0.3 | |||||||||||||||||||||
| Net income (loss) | — | 2.7 | |||||||||||||||||||||
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Comparison of the three months ended March 31, 2023 and April 1, 2022 | ||
Net sales
| Three Months Ended | Change | ||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2023 | April 1, 2022 | Amount | % | ||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 225,870 | $ | 293,146 | $ | (67,276) | (22.9) | % | |||||||||||||||||||||||||||||||||||||||
The decrease in net sales from the three months ended April 1, 2022 to the three months ended March 31, 2023 was primarily due to reduced customer demand stemming from reduced spending within the semiconductor capital equipment industry. Further detail is provided above under the section entitled Macroeconomic Conditions and Business Update.
Cost of sales, Gross profit, and Gross Margin
| Three Months Ended | Change | ||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2023 | April 1, 2022 | Amount | % | ||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Cost of sales | $ | 192,630 | $ | 249,214 | $ | (56,584) | (22.7) | % | |||||||||||||||||||||||||||||||||||||||
| Gross profit | $ | 33,240 | $ | 43,932 | $ | (10,692) | (24.3) | % | |||||||||||||||||||||||||||||||||||||||
| Gross margin | 14.7 | % | 15.0 | % | -30 | bps | |||||||||||||||||||||||||||||||||||||||||
The decrease in the gross amounts of cost of sales and gross profit from the three months ended April 1, 2022 to the three months ended March 31, 2023 was primarily due to the factors mentioned in the commentary above under the heading, “Net Sales.”
The decrease in gross margin from the three months ended April 1, 2022 to the three months ended March 31, 2023 was primarily due to reduced factory utilization as a result of lower volume due to reduced customer demand.
Research and development
| Three Months Ended | Change | ||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2023 | April 1, 2022 | Amount | % | ||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Research and development | $ | 4,313 | $ | 4,851 | $ | (538) | (11.1) | % | |||||||||||||||||||||||||||||||||||||||
The decrease in research and development expenses from the three months ended April 1, 2022 to the three months ended March 31, 2023 was primarily due to reduced employee-related expense.
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Selling, general, and administrative
| Three Months Ended | Change | ||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2023 | April 1, 2022 | Amount | % | ||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Selling, general, and administrative | $ | 20,167 | $ | 23,267 | $ | (3,100) | (13.3) | % | |||||||||||||||||||||||||||||||||||||||
The decrease in selling, general, and administrative expense from the three months ended April 1, 2022 to the three months ended March 31, 2023 was primarily due to a $3.1 million loss accrual recorded in the first quarter of 2022 relating to an expected settlement of an employment-related legal matter and reduced employee-related expenses, inclusive of share-based compensation expense, of $0.5 million, partially offset by increased software and IT system costs of $0.5 million.
Amortization of intangible assets
| Three Months Ended | Change | ||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2023 | April 1, 2022 | Amount | % | ||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | $ | 3,966 | $ | 5,349 | $ | (1,383) | (25.9) | % | |||||||||||||||||||||||||||||||||||||||
The decrease in amortization expense from the three months ended April 1, 2022 to the three months ended March 31, 2023 was primarily due to certain intangible assets becoming fully amortized in 2022.
Interest expense, net
| Three Months Ended | Change | ||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2023 | April 1, 2022 | Amount | % | ||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | $ | 4,550 | $ | 1,532 | $ | 3,018 | 197.0 | % | |||||||||||||||||||||||||||||||||||||||
| Weighted average borrowings outstanding | $ | 302,479 | $ | 294,959 | $ | 7,520 | 2.5 | % | |||||||||||||||||||||||||||||||||||||||
| Weighted average borrowing rate | 6.10 | % | 1.83 | % | +427 bps | ||||||||||||||||||||||||||||||||||||||||||
The increase in interest expense, net from the three months ended April 1, 2022 to the three months ended March 31, 2023 was due to an increase in our average amount borrowed and an increase in our weighted average borrowing rate. The increase in the average amount borrowed was due to a net draw on our revolving credit facility of $15.0 million in the second quarter of 2022, partially offset by quarterly term loan payments. The increase in our weighted average borrowing rate is due to increased risk-free, short-term borrowing rates as a result of tightening monetary policy, which impacts BSBY, the variable component of our borrowing rate under our credit facilities.
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Other expense, net
| Three Months Ended | Change | ||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2023 | April 1, 2022 | Amount | % | ||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Other expense, net | $ | 784 | $ | 84 | $ | 700 | 833.3 | % | |||||||||||||||||||||||||||||||||||||||
The change in other expense, net from the three months ended April 1, 2022 to the three months ended March 31, 2023 was primarily due to currency exchange rate fluctuations during the quarter, reflecting a strengthening U.S. dollar against local currency payables of our foreign operations.
Income tax expense (benefit)
| Three Months Ended | Change | ||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2023 | April 1, 2022 | Amount | % | ||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense (benefit) | $ | (535) | $ | 810 | $ | (1,345) | n/m | ||||||||||||||||||||||||||||||||||||||||
| Income (loss) before income taxes | $ | (540) | $ | 8,849 | $ | (9,389) | n/m | ||||||||||||||||||||||||||||||||||||||||
| Effective income tax rate | 99.1 | % | 9.2 | % | +8,990 bps | ||||||||||||||||||||||||||||||||||||||||||
The decrease in income tax expense from the three months ended April 1, 2022 to the three months ended March 31, 2023 was primarily due to decreased taxable income in the U.S.
Non‑GAAP Financial Results | ||
Management uses certain non-GAAP metrics to evaluate our operating and financial results. We believe 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 our results from management’s perspective. Non-GAAP gross profit, operating income, and net income are defined as: gross profit, operating income, or net income (loss), respectively, excluding (1) amortization of intangible assets, share-based compensation expense, and discrete or infrequent charges and gains that are outside of normal business operations, including acquisition-related costs, contract and legal settlement gains and losses, facility shutdown costs, and severance costs associated with reduction-in-force programs, to the extent they are present in gross profit, operating income, and net income (loss), respectively; and (2) the tax impacts associated with these non-GAAP adjustments, as well as non-recurring discrete tax items. Non-GAAP diluted earnings per share ("EPS") is defined as non-GAAP net income divided by weighted average diluted ordinary shares outstanding during the period. Non-GAAP gross margin and non-GAAP operating margin are defined as non-GAAP gross profit and non-GAAP operating income, respectively, divided by net sales.
Non-GAAP results have limitations as an analytical tool, and you should not consider them in isolation or as a substitute for our results reported under GAAP. Other companies may calculate non-GAAP results differently or may use other measures to evaluate their performance, both of which could reduce the usefulness of our non-GAAP results as a tool for comparison.
Because of these limitations, you should consider non-GAAP results alongside other financial performance measures and results presented in accordance with GAAP. In addition, in evaluating non-GAAP results, you should be aware that in the future we will incur expenses such as those that are the subject of adjustments in deriving non-GAAP results and you should not infer from our presentation of non-GAAP results that our future results will not be affected by these expenses or other discrete or infrequent charges and gains that are outside of normal business operations.
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The following table presents our unaudited non‑GAAP gross profit and non-GAAP gross margin and a reconciliation from gross profit, the most comparable GAAP measure, for the periods indicated:
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2023 | April 1, 2022 | ||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| U.S. GAAP gross profit | $ | 33,240 | $ | 43,932 | |||||||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Share-based compensation | 421 | 551 | |||||||||||||||||||||
| Fair value adjustment to inventory from acquisitions (1) | — | 2,492 | |||||||||||||||||||||
| Other (2) | 1,287 | — | |||||||||||||||||||||
| Non-GAAP gross profit | $ | 34,948 | $ | 46,975 | |||||||||||||||||||
| U.S. GAAP gross margin | 14.7 | % | 15.0 | % | |||||||||||||||||||
| Non-GAAP gross margin | 15.5 | % | 16.0 | % | |||||||||||||||||||
(1)As part of the purchase price allocation of our acquisition of IMG Companies, LLC (“IMG”) in November 2021, we recorded acquired-inventories at fair value, resulting in a fair value step-up. This amount represents the release of the step-up to cost of sales as acquired-inventories were sold.
(2)Included in this amount are severance costs associated with our global reduction-in-force programs.
The following table presents our unaudited non‑GAAP operating income and non-GAAP operating margin and a reconciliation from operating income, the most comparable GAAP measure, for the periods indicated:
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2023 | April 1, 2022 | ||||||||||||||||||||||
| (dollars in thousands, except per share amounts) | |||||||||||||||||||||||
| U.S. GAAP operating income | $ | 4,794 | $ | 10,465 | |||||||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Amortization of intangible assets | 3,966 | 5,349 | |||||||||||||||||||||
| Share-based compensation | 3,637 | 2,897 | |||||||||||||||||||||
| Settlement loss (1) | — | 3,100 | |||||||||||||||||||||
| Fair value adjustment to inventory from acquisitions (2) | — | 2,492 | |||||||||||||||||||||
| Acquisition costs (3) | — | 275 | |||||||||||||||||||||
| Other (4) | 1,324 | — | |||||||||||||||||||||
| Non-GAAP operating income | $ | 13,721 | $ | 24,578 | |||||||||||||||||||
| U.S. GAAP operating margin | 2.1 | % | 3.6 | % | |||||||||||||||||||
| Non-GAAP operating margin | 6.1 | % | 8.4 | % | |||||||||||||||||||
(1)During the first quarter of 2022, we recorded a loss accrual of $3.1 million relating to an expected settlement of an employment-related legal matter. We expect the settlement to be finalized and paid in 2023.
(2)As part of the purchase price allocation of our acquisition of IMG, we recorded acquired-inventories at fair value, resulting in a fair value step-up. This amount represents the release of the step-up to cost of sales as acquired-inventories were sold.
(3)Included in this amount are transaction-related costs incurred in connection with our acquisition of IMG.
(4)Included in this amount are severance costs associated with our global reduction-in-force programs.
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The following table presents our unaudited non‑GAAP net income and non-GAAP diluted EPS and a reconciliation from net income, the most comparable GAAP measure, for the periods indicated:
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2023 | April 1, 2022 | ||||||||||||||||||||||
| (dollars in thousands, except per share amounts) | |||||||||||||||||||||||
| U.S. GAAP net income (loss) | $ | (5) | $ | 8,039 | |||||||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Amortization of intangible assets | 3,966 | 5,349 | |||||||||||||||||||||
| Share-based compensation | 3,637 | 2,897 | |||||||||||||||||||||
| Settlement loss (1) | — | 3,100 | |||||||||||||||||||||
| Fair value adjustment to inventory from acquisitions (2) | — | 2,492 | |||||||||||||||||||||
| Acquisition costs (3) | — | 275 | |||||||||||||||||||||
| Other (4) | 1,324 | — | |||||||||||||||||||||
| Tax adjustments related to non-GAAP adjustments (5) | 2,206 | (1,974) | |||||||||||||||||||||
| Non-GAAP net income | $ | 11,128 | $ | 20,178 | |||||||||||||||||||
| U.S. GAAP diluted EPS | $ | 0.00 | $ | 0.28 | |||||||||||||||||||
| Non-GAAP diluted EPS | $ | 0.38 | $ | 0.70 | |||||||||||||||||||
| Shares used to compute non-GAAP diluted EPS | 29,412,185 | 29,023,455 | |||||||||||||||||||||
(1)During the first quarter of 2022, we recorded a loss accrual of $3.1 million relating to an expected settlement of an employment-related legal matter. We expect the settlement to be finalized and paid in 2023.
(2)As part of the purchase price allocation of our acquisition of IMG, we recorded acquired-inventories at fair value, resulting in a fair value step-up. This amount represents the release of the step-up to cost of sales as acquired-inventories were sold.
(3)Included in this amount are transaction-related costs incurred in connection with our acquisition of IMG.
(4)Included in this amount are severance costs associated with our global reduction-in-force programs.
(5)Adjusts U.S. GAAP income tax expense for impact of our non-GAAP adjustments, as defined, including the impacts of excluding share-based compensation and amortization of intangible assets. Additionally, this adjustment excludes the impact of non-recurring discrete tax items.
Liquidity and Capital Resources | ||
The following section discusses our liquidity and capital resources, including our primary sources of liquidity and our material cash requirements. Our cash and cash equivalents are maintained in highly liquid and accessible accounts with no significant restrictions.
Material Cash Requirements
Our primary liquidity requirements arise from: (i) working capital requirements, including procurement of raw materials inventory for use in our factories and employee-related costs, (ii) business acquisitions, (iii) interest and principal payments under our credit facilities, (iv) research and development investments and capital expenditures, and (v) payment of income taxes. We have no significant long-term purchase commitments related to procuring raw materials inventory. Our ability to fund these requirements will depend, in part, on our future cash flows, which are determined by our future operating performance and are therefore subject to prevailing global macroeconomic conditions and financial, business, and other factors, some of which are beyond our control.
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We believe that our cash and cash equivalents, the amounts available under our credit facilities, and our operating cash flow will be sufficient to fund our business and our current obligations for at least the next 12 months and beyond.
Sources and Conditions of Liquidity
Our ongoing sources of liquidity to fund our material cash requirements are primarily derived from: (i) sales to our customers and the related changes in our net operating assets and liabilities and (ii) proceeds from our credit facilities and equity offerings, when applicable.
Summary of Cash Flows
We ended the first quarter of 2023 with cash and cash equivalents of $68.8 million, a decrease of $17.6 million from the prior year ended December 30, 2022. The decrease of $17.6 million during the first quarter was primarily due to net cash used in operating activities of $10.9 million and capital expenditures of $6.8 million.
The following table sets forth a summary of operating, investing, and financing activities for the periods presented:
| Three Months Ended | |||||||||||
| March 31, 2023 | April 1, 2022 | ||||||||||
| (in thousands) | |||||||||||
| Cash used in operating activities | $ | (10,873) | $ | (36,278) | |||||||
| Cash used in investing activities | (6,819) | (3,417) | |||||||||
| Cash provided by (used in) financing activities | 59 | (1,284) | |||||||||
| Net decrease in cash | $ | (17,633) | $ | (40,979) | |||||||
Our cash used in operating activities of $10.9 million during the first quarter consisted of net loss of $0.0 million, net non-cash charges of $11.2 million, consisting primarily of depreciation and amortization of $8.5 million and share-based compensation expense of $3.6 million, and an increase in our net operating assets and liabilities of $22.1 million.
The increase in our net operating assets and liabilities of $22.1 million during the first quarter was primarily due to a decrease in accounts payable of $43.0 million, which was primarily due to the timing of inventory purchases and receipts, partially offset by a decrease in accounts receivable of $13.6 million and a decrease in inventories of $12.1 million.
Cash used in investing activities during the first quarter of 2023 and 2022 consisted of capital expenditures.
Cash provided by financing activities during the first quarter of 2023 and 2022 consisted of net proceeds from share-based compensation activity of $1.9 million and $0.6 million, respectively, partially offset by term loan payments of $1.9 million.
Critical Accounting Estimates | ||
Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.
The critical accounting policies requiring estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements are identified and described in our annual consolidated financial statements and the notes included in our 2022 Annual Report on Form 10‑K.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
| Foreign Currency Exchange Risk | ||
Substantially all of our sales arrangement with customers, and the significant majority of our arrangements with third-party suppliers, provide for pricing and payment in U.S. dollars and, therefore, are not subject to material exchange rate fluctuations. As a result, we do not expect foreign currency exchange rate fluctuations to have a material effect on our results of operations. However, increases in the value of the U.S. dollar relative to other currencies would make our products more expensive relative to competing products priced in such other currencies, which could negatively impact our ability to compete. Conversely, decreases in the value of the U.S. dollar relative to other currencies could result in our foreign suppliers raising their prices in order to continue doing business with us.
We have certain operating expenses that are denominated in currencies of the countries in which our operations are located, and may be subject to fluctuations due to foreign currency exchange rates, particularly the Singapore dollar, Malaysian ringgit, British pound, euro, Korean won, and Mexican peso. Fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our statement of operations. To date, foreign currency transaction gains and losses have not been material to our financial statements, and we have not engaged in any foreign currency hedging transactions.
| Interest Rate Risk | ||
We had total indebtedness of $300.6 million as of March 31, 2023, exclusive of $1.7 million in debt issuance costs, of which $7.5 million was due within 12 months. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been, nor do we anticipate being exposed to, material risks due to changes in interest rates. As of March 31, 2023, the interest rate on our outstanding debt is based on BSBY, plus an applicable rate depending on our leverage ratio. A hypothetical 100 basis point change in the interest rate on our outstanding debt would have resulted in a $0.8 million change to interest expense during the quarter, or $3.0 million on an annualized basis.
ITEM 4. CONTROLS AND PROCEDURES
| Evaluation of Disclosure Controls and Procedures | ||
We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (the certifying officers), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Securities and Exchange Act, as amended (“the Exchange Act”)) as of December 30, 2022. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on this evaluation, our certifying officers concluded that our disclosure controls and procedures were not effective as of March 31, 2023, due to a material weakness in internal control over financial reporting that was disclosed in Part II – Item 9A of our 2022 Annual Report on Form 10‑K.
| Limitations on Effectiveness of Controls and Procedures | ||
A company’s internal control over financial reporting is a process designed by, or under the supervision of, a company’s principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate. If we cannot provide reliable financial information, our business, operating results, and share price could be negatively impacted.
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| Changes in Internal Control Over Financial Reporting | ||
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the period covered under this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| Remediation | ||
As previously described in Part II – Item 9A, Controls and Procedures of our Annual Report on Form 10‑K for the fiscal year ended December 30, 2022, we are implementing a remediation plan to address the material weakness mentioned above. The weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect the remediation of the material weakness to be completed prior to the end of fiscal year 2023.
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PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are currently not a party to any material pending or threatened litigation.
ITEM 1A. RISK FACTORS
This quarterly report should be read in conjunction with the risk factors included in our 2022 Annual Report on Form 10‑K. There have been no material changes in our risk factors from the risk factors disclosed in that report. These risk factors do not identify all risks that we face – our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibit Number | Description | |||||||
| 101.INS* | Inline XBRL Instance Document | |||||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101) | |||||||
*Filed herewith.
**Furnished herewith and not filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ICHOR HOLDINGS, LTD. | ||||||||
Date: May 10, 2023 | By: | /s/ Jeffrey S. Andreson | ||||||
| Jeffrey S. Andreson | ||||||||
Chief Executive Officer (Principal Executive Officer) | ||||||||
Date: May 10, 2023 | By: | /s/ Larry J. Sparks | ||||||
| Larry J. Sparks | ||||||||
Chief Financial Officer (Principal Accounting and Financial Officer) | ||||||||
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Exhibit 31.1
CEO CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeffrey S. Andreson, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Ichor Holdings, Ltd.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 10, 2023 | By: | /s/ Jeffrey S. Andreson | ||||||
| Jeffrey S. Andreson | ||||||||
| Chief Executive Officer | ||||||||
Exhibit 31.2
CFO CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Larry J. Sparks, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Ichor Holdings, Ltd.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 10, 2023 | By: | /s/ Larry J. Sparks | ||||||
| Larry J. Sparks | ||||||||
| Chief Financial Officer | ||||||||
Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Ichor Holdings, Ltd. (the “Company”) on Form 10-Q for the period ending March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, to my knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes‑Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: May 10, 2023 | By: | /s/ Jeffrey S. Andreson | ||||||
| Jeffrey S. Andreson | ||||||||
| Chief Executive Officer | ||||||||
Exhibit 32.2
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Ichor Holdings, Ltd. (the “Company”) on Form 10-Q for the period ending March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, to my knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes‑Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: May 10, 2023 | By: | /s/ Larry J. Sparks | ||||||
| Larry J. Sparks | ||||||||
| Chief Financial Officer | ||||||||