Ichor Holdings, Ltd. Announces Fourth Quarter and Fiscal Year 2018 Financial Results

FREMONT, Calif.–(BUSINESS WIRE)–Ichor Holdings, Ltd. (NASDAQ: ICHR), a leader in the design,
engineering, and manufacturing of critical fluid delivery subsystems for
semiconductor capital equipment, today announced financial results for
the fourth quarter and fiscal year 2018.

Highlights for the fourth quarter of 2018:

  • Revenues of $141 million;
  • Generated $31 million of free cash flow;
  • Gross margin of 15.2% on a GAAP basis and 15.3% on a non-GAAP basis;
  • Net earnings of $0.15 per diluted share on a GAAP basis and $0.32 on a
    non-GAAP basis;
  • Completed $30 million of share repurchases in the fourth quarter.

Highlights for fiscal year 2018:

  • Record revenue of $824 million;
  • Gross margin of 16.5% on a GAAP basis and 17.2% on a non-GAAP basis;
  • Net earnings of $2.30 per diluted share on a GAAP basis and $2.99 on a
    non-GAAP basis;
  • Completed $90 million of share repurchases against our $100 million
    total authorization established in February 2018.

“2018 was Ichor’s strongest year on record, with 26% revenue growth
year-over-year, along with increasing gross margin, operating margin,
and earnings per share, compared to 2017,” commented Chairman and CEO
Tom Rohrs. “Along with the rest of the industry, we experienced a
significant slowdown in business in the second half of the year, and
conditions in the fourth quarter were more challenging than forecast. In
spite of the second-half decline in industry spending, we delivered
revenue growth for the year that well-outpaced the overall growth in the
wafer fabrication equipment industry, primarily due to the contribution
from strategic acquisitions, as well as strong execution in our core gas
panel business. We demonstrated the strength of our variable
manufacturing cost structure by generating record profits and free cash
flows for the year. As we continue to navigate through this challenging
business environment, we expect to continue delivering solid
profitability while we execute on our strategy to expand our market
share within our served markets through continued design wins and close
collaboration with our customers.”

       
Fiscal Year
Q4 2018 Q3 2018 Q4 2017 2018   2017
(in thousands, except per share amounts and percentages)
U.S. GAAP Financial Results:
Net sales $ 141,402 $ 175,207 $ 182,936 $ 823,611 $ 655,892
Gross profit percent 15.2 % 16.1 % 15.9 % 16.5 % 15.4 %
Operating income percent 4.2 % 6.6 % 6.7 % 7.8 % 7.0 %
Net income from continuing operations $ 3,485 $ 9,637 $ 19,195 $ 57,883 $ 56,915
Diluted EPS $ 0.15 $ 0.39 $ 0.72 $ 2.30 $ 2.17
        Fiscal Year
Q4 2018 Q3 2018 Q4 2017 2018   2017
(in thousands, except per share amounts and percentages)
Non-GAAP Financial Results:
Net sales $ 141,402 $ 175,207 $ 182,936 $ 823,611 $ 655,892
Gross profit percent 15.3 % 16.2 % 17.1 % 17.2 % 16.4 %
Operating income percent 7.5 % 9.8 % 11.2 % 11.3 % 10.7 %
Adjusted net income from continuing operations $ 7,280 $ 13,601 $ 18,640 $ 75,052 $ 65,060
Diluted EPS $ 0.32 $ 0.55 $ 0.70 $ 2.99 $ 2.48
 

U.S. GAAP Financial Results Overview

For the fourth quarter of 2018, revenue was $141.4 million, net income
from continuing operations was $3.5 million, and net income from
continuing operations per diluted share (“diluted EPS”) was $0.15. This
compares to revenue of $175.2 million and $182.9 million, net income
from continuing operations of $9.6 million and $19.2 million, and
diluted EPS of $0.39 and $0.72, for the third quarter of 2018 and fourth
quarter of 2017, respectively.

For fiscal year 2018, revenue was $823.6 million, net income from
continuing operations was $57.9 million, and diluted EPS was $2.30. This
compares to revenue of $655.9 million, net income from continuing
operations of $56.9 million, and diluted EPS of $2.17 for fiscal year
2017.

Non-GAAP Financial Results Overview

For the fourth quarter of 2018, non-GAAP adjusted net income from
continuing operations was $7.3 million and non-GAAP adjusted diluted EPS
was $0.32. This compares to non-GAAP adjusted net income from continuing
operations of $13.6 million and $18.6 million, and non-GAAP adjusted
diluted EPS of $0.55 and $0.70, for the third quarter of 2018 and fourth
quarter of 2017, respectively.

For fiscal year 2018, non-GAAP adjusted net income from continuing
operations was $75.1 million and non-GAAP adjusted diluted EPS was
$2.99. This compares to non-GAAP adjusted net income from continuing
operations of $65.1 million and non-GAAP adjusted diluted EPS of $2.48
for fiscal year 2017.

First Quarter 2019 Financial Outlook

For the first quarter of 2019, we expect revenue to be in the range of
$131 to $141 million. We expect GAAP diluted EPS to be in the range of
$0.01 to $0.10 and non-GAAP adjusted diluted EPS to be in the range of
$0.23 to $0.31.

This outlook for non-GAAP adjusted diluted EPS excludes known charges
related to amortization of intangible assets, share-based compensation
expense, tax adjustments related to these non-GAAP adjustments, and
non-recurring charges known at the time of providing this outlook. This
outlook for non-GAAP adjusted diluted EPS excludes any items that are
unknown at this time, such as non-recurring tax-related items or other
unusual items which we are not able to predict without unreasonable
efforts due to their inherent uncertainty.

Balance Sheet and Cash Flow Results

We ended the fourth quarter of 2018 with cash of $43.8 million. The
quarterly net increase of $10.8 million from the third quarter of 2018
was primarily due to cash from operations of $33.1 million and net
borrowing on long-term debt of $9.8 million, partially offset by share
repurchases of $29.7 million and capital expenditures of $2.5 million.

The net decrease in cash of $25.5 million during the fiscal year 2018
from December 29, 2017 was primarily due to cash flow from operations of
$60.5 million, net borrowings on long-term debt of $15.3 million, and
proceeds from the issuance of ordinary shares under our share-based
compensation plans of $6.2 million, offset by share repurchases of
$90.0 million, capital expenditures of $13.9 million, debt modification
costs from the refinancing of our credit facilities in February 2018 of
$2.1 million, and net cash paid in connection with acquisitions of
$1.4 million.

Our cash from operations during fiscal year 2018 of $60.5 million was
due to net income of $57.9 million and net non-cash charges of
$24.9 million, partially offset by an increase in our net operating
assets and liabilities of $22.3 million, net of acquired assets and
liabilities. Non-cash charges primarily consist of depreciation and
amortization of $23.1 million and share-based compensation of
$7.6 million, partially offset by deferred income taxes of $6.7 million.
The increase in our net operating assets and liabilities was primarily
due to a decrease in accounts payable and accrued and other liabilities
of $62.2 million and $5.0 million, respectively, partially offset by a
decrease in inventories and accounts receivable of $35.1 million and
$10.4 million, respectively.

Use of Non-GAAP Financial Results

In addition to U.S. GAAP results, this press release also contains
non-GAAP financial results, including non-GAAP gross profit, non-GAAP
operating income, non-GAAP adjusted net income from continuing
operations, and non-GAAP adjusted diluted EPS. These non-GAAP metrics
exclude amortization of intangible assets, share-based compensation
expense, non-recurring expenses including adjustments to the cost of
goods sold, tax adjustments related to those non-GAAP adjustments, and
non-recurring discrete tax items including tax impacts from releasing a
valuation allowance related to foreign tax credits, to the extent they
are present in gross profit, operating income, and net income from
continuing operations. A table showing these metrics on a GAAP and
non-GAAP basis, with reconciliation footnotes thereto, is included at
the end of this press release. Non-GAAP adjusted diluted EPS is defined
as non-GAAP adjusted net income from continuing operations divided by
weighted average diluted ordinary shares outstanding during the period.

Management uses non-GAAP gross profit, non-GAAP operating income,
non-GAAP adjusted net income from continuing operations, and non-GAAP
adjusted diluted EPS 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. A table presenting the reconciliation of
non-GAAP adjusted net income from continuing operations to U.S. GAAP net
income from continuing operations is also included at the end of this
press release.

Conference Call

We will conduct a conference call to discuss our fourth quarter and
fiscal year 2018 results and business outlook on February 6, 2019, at
1:30 p.m. Pacific time.

To listen to the conference call via the Internet, please visit the
investor relations section of our web site at ir.ichorsystems.com.
To listen to the conference call via telephone, please call 844-395-9251
(domestic) or 478-219-0504 (international), conference ID: 1553906.

A taped replay of the webcast will be available shortly after the call
on our website or by calling 855-859-2056 (domestic) or 404-537-3406
(international), conference ID: 1553906.

About Ichor

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
subsystems, collectively known as fluid delivery subsystems, which are
key elements of the process tools used in the manufacturing of
semiconductor devices. Our gas delivery subsystems deliver, monitor and
control precise quantities of the specialized gases used in
semiconductor manufacturing processes such as etch and deposition. Our
chemical delivery subsystems precisely blend and dispense the reactive
liquid chemistries used in semiconductor manufacturing processes such as
chemical-mechanical planarization, electroplating, and cleaning. We also
manufacture precision machined components, weldments, and proprietary
products for use in fluid delivery systems for direct sales to our
customers. We also manufacture certain components for internal use in
fluid delivery systems and for direct sales to our customers. This
vertically integrated portion of our business is primarily focused on
metal and plastic parts that are used in gas and chemical systems,
respectively. We are headquartered in Fremont, CA. www.ichorsystems.com.

We use a 52 or 53 week fiscal year ending on the last Friday in
December. The three months ended December 28, 2018, September 28, 2018,
and December 29, 2017 were all 13 weeks. The years ending
December 28, 2018 and December 29, 2017 were both 52 weeks. References
to the fourth and third quarters of 2018 and the fourth quarter of 2017
relate to the three months ended December 28, 2018, September 28, 2018,
and December 29, 2017, respectively. References to fiscal years 2018 and
2017 relate to the years ending December 28, 2018 and December 29, 2017,
respectively.

Safe Harbor Statement

Certain statements in this release are “forward-looking statements” made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Words such as “guidance,” “expects,”
“intends,” “projects,” “plans,” “believes,” “estimates,” “targets,”
“anticipates,” “look forward,” and similar expressions are used to
identify these forward-looking statements.

Examples of forward-looking statements include, but are not limited to,
statements regarding expected revenue, growth, earnings, profitability,
and industry trends for the first quarter of 2019, as well as any other
statement that does not directly relate to any historical or current
fact. Forward-looking statements are based on management’s current
expectations and assumptions regarding Ichor’s business and industry,
the economy and other future conditions, which may not prove to be
accurate. These statements are not guarantees and are subject to risks,
uncertainties and changes in circumstances that are difficult to
predict. Accordingly, you are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date they
are made. Many factors could cause actual results to differ
materially and adversely from these forward-looking statements,
including: (1) dependence on expenditures by manufacturers and cyclical
downturns in the semiconductor capital equipment industry, (2) reliance
on a very small number of original equipment manufacturers for a
significant portion of sales, (3) negotiating leverage held by our
customers, (4) competitiveness and rapid evolution of the industries in
which we participate, (5) risks associated with weakness in the global
economy and geopolitical instability, (6) keeping pace with developments
in the industries we serve and with technological innovation generally,
(7) designing, developing and introducing new products that are accepted
by original equipment manufacturers in order to retain our existing
customers and obtain new customers, (8) managing our manufacturing and
procurement process effectively, (9) defects in our products that could
damage our reputation, decrease market acceptance and result in
potentially costly litigation, (10) dependence on a limited number of
suppliers and (11) the integration of recent acquisitions with Ichor,
including the ability to retain customers, suppliers and key employees.
Additional information concerning these and other factors can be found
in Ichor’s filings with the Securities and Exchange Commission (the
“SEC”), including other risks, relevant factors and uncertainties
identified in the “Risk Factors” section of Ichor’s Annual Report on
Form 10-K filed with the SEC on March 13, 2018, and subsequent filings
with the SEC.

All forward-looking statements in this press release are based upon
information available to us as of the date hereof, and qualified in
their entirety by this cautionary statement. We undertake no obligation
to update or revise any forward-looking statements contained herein,
whether as a result of actual results, changes in Ichor’s expectations,
future events or developments, or otherwise, except as required by law.

   

ICHOR HOLDINGS, LTD.
Consolidated Balance Sheets
(dollars
in thousands, except per share amounts)

(unaudited)

 

December 28,
2018

 

December 29,
2017

Assets
Current assets:
Cash $ 43,834 $ 68,794
Restricted cash 510
Accounts receivable, net 40,287 49,249
Inventories, net 121,106 154,541
Prepaid expenses and other current assets 6,348 5,357
Current assets from discontinued operations       3
Total current assets 211,575 278,454
Property and equipment, net 41,740 34,380
Other noncurrent assets 906 1,052
Deferred tax assets 1,363 994
Intangible assets, net 56,895 73,405
Goodwill   173,010     169,399
Total assets $ 485,489   $ 557,684
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $ 64,300 $ 121,405
Accrued liabilities 9,556 12,211
Other current liabilities 5,148 6,715
Current portion of long-term debt 8,750 6,490
Current liabilities from discontinued operations       400
Total current liabilities 87,754 147,221
Long-term debt, less current portion, net 192,117 180,247
Deferred tax liabilities 3,966 10,558
Other non-current liabilities   3,326     2,896
Total liabilities   287,163     340,922
Shareholders’ equity:
Preferred shares ($0.0001 par value; 20,000,000 shares authorized;
zero shares issued and outstanding)
Ordinary shares ($0.0001 par value; 200,000,000 shares authorized;
22,234,508 and 25,892,162 shares outstanding, respectively;
26,574,037 and 25,892,162 shares issued, respectively)
2 3
Additional paid in capital 228,358 214,697
Treasury shares at cost (4,339,529 and zero shares, respectively) (89,979 )
Retained earnings   59,945     2,062
Total shareholders’ equity   198,326     216,762
Total liabilities and shareholders’ equity $ 485,489   $ 557,684
 
   

ICHOR HOLDINGS, LTD.
Consolidated Statement of
Operations

(dollars in thousands, except per share
amounts)

(unaudited)

 
Three Months Ended Year Ended

December 28,
2018

 

September 28,
2018

 

December 29,
2017

December 28,
2018

 

December 29,
2017

Net sales $ 141,402 $ 175,207 $ 182,936 $ 823,611 $ 655,892
Cost of sales   119,953   146,993   153,892   687,474   555,131
Gross profit   21,449   28,214   29,044   136,137   100,761
Operating expenses:
Research and development 2,203 2,123 2,213 9,355 7,899
Selling, general, and administrative 9,432 10,658 11,530 47,448 37,802
Amortization of intangible assets   3,833   3,885   3,062   15,369   8,880
Total operating expenses   15,468   16,666   16,805   72,172   54,581
Operating income 5,981 11,548 12,239 63,965 46,180
Interest expense 2,627 2,553 1,173 9,987 3,277
Other expense (income), net   (181 )   (84 )   199   (241 )   (126 )
Income from continuing operations before income taxes 3,535 9,079 10,867 54,219 43,029
Income tax expense (benefit) from continuing operations   50   (558 )   (8,328 )   (3,664 )   (13,886 )
Net income from continuing operations   3,485   9,637   19,195   57,883   56,915
Discontinued operations:
Loss from discontinued operations before taxes (1 ) (722 )
Income tax benefit from discontinued operations       (270 )     (261 )
Net income (loss) from discontinued operations       269     (461 )
Net income $ 3,485 $ 9,637 $ 19,464   57,883   56,454
Net income per share from continuing operations:
Basic $ 0.15 $ 0.40 $ 0.75 $ 2.34 $ 2.27
Diluted $ 0.15 $ 0.39 $ 0.72 $ 2.30 $ 2.17
Net income per share:
Basic $ 0.15 $ 0.40 $ 0.76 $ 2.34 $ 2.25
Diluted $ 0.15 $ 0.39 $ 0.73 $ 2.30 $ 2.15
Shares used to compute net income from continuing operations per
share:
Basic 22,768,704 24,352,995 25,702,231 24,706,542 25,118,031
Diluted 23,014,317 24,674,912 26,656,065 25,128,055 26,218,424
Shares used to compute net income per share:
Basic 22,768,704 24,352,995 25,702,231 24,706,542 25,118,031
Diluted 23,014,317 24,674,912 26,656,065 25,128,055 26,218,424
 
 

ICHOR HOLDINGS, LTD.
Consolidated Statements of
Cash Flows

(in thousands)
(unaudited)

 
Year Ended

December 28,
2018

 

December 29,
2017

Cash flows from operating activities:
Net income $ 57,883 $ 56,454
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 23,064 12,509
Gain on sale of investments and settlement of note receivable (241 )
Share-based compensation 7,577 2,230
Deferred income taxes (6,687 ) (15,347 )
Amortization of debt issuance costs 970 608
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net 10,425 (1,059 )
Inventories 35,125 (43,425 )
Prepaid expenses and other assets (684 ) 3,386
Accounts payable (62,173 ) 22,612
Accrued liabilities (3,517 ) 848
Other liabilities   (1,509 )   228
Net cash provided by operating activities   60,474   38,803
Cash flows from investing activities:
Capital expenditures (13,920 ) (8,226 )
Cash paid for acquisitions, net of cash acquired (1,443 ) (180,955 )
Proceeds from sale of investments and settlement note receivable     2,430
Net cash used in investing activities   (15,363 )   (186,751 )
Cash flows from financing activities:
Issuance of ordinary shares, net of fees 7,278
Issuance of ordinary shares under share-based compensation plans 6,329 9,141
Employees’ taxes paid upon vesting of restricted share units (91 )
Repurchase of ordinary shares (89,979 )
Debt issuance and modification costs (2,092 ) (1,520 )
Borrowings on revolving credit facility 44,162 10,000
Repayments on revolving credit facility (20,000 )
Proceeds from term loan 140,000
Repayments on term loan   (8,910 )   (295 )
Net cash provided by (used in) financing activities   (70,581 )   164,604
Net increase (decrease) in cash (25,470 ) 16,656
Cash at beginning of year   69,304   52,648
Cash at end of year $ 43,834 $ 69,304
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 8,273 $ 3,436
Cash paid during the period for taxes $ 2,278 $ 1,068
Supplemental disclosures of non-cash activities:
Capital expenditures included in accounts payable $ 1,462 $ 723
   

ICHOR HOLDINGS, LTD.
Reconciliation of U.S. GAAP
Net Income from Continuing Operations to Non-GAAP Adjusted Net
Income from Continuing Operations

(dollars in
thousands, except per share amounts)

(unaudited)

 
Three Months Ended Year Ended

December 28,
2018

 

September 28,
2018

 

December 29,
2017

December 28,
2018

 

December 29,
2017

Net income from continuing operations $ 3,485 $ 9,637 $ 19,195 $ 57,883 $ 56,915
Non-GAAP adjustments:
Amortization of intangible assets 3,833 3,885 3,062 15,369 8,880
Share-based compensation (1) 1,300 1,271 694 7,577 2,230
Other non-recurring expense, net (2) (556 ) 397 2,239 1,727 4,767
Tax adjustments related to non-GAAP adjustments (782 ) (1,589 ) (564 ) (8,203 ) (626 )
Tax benefit from acquisitions (3) (2,301 ) (7,582 )
Tax benefit from re-characterizing intercompany debt to equity (4) (1,627 )
Tax impact from tax law change (5) (5,911 ) (5,911 )
Tax benefit from release of valuation allowance (6) (4,140 )
Adjustments to cost of goods sold (7) 1,752
Fair value adjustment to inventory from acquisitions (8) 2,226 4,839 5,230
Loss on Ajax acquisition arbitration settlement (9)           1,032
Non-GAAP adjusted net income from continuing operations $ 7,280 $ 13,601 $ 18,640 $ 75,052 $ 65,060
Non-GAAP adjusted diluted EPS $ 0.32 $ 0.55 $ 0.70 $ 2.99 $ 2.48
Shares used to compute diluted EPS 23,014,317 24,674,912 26,656,065 25,128,055 26,218,424
(1)   Included in share-based compensation for 2018 is $2.9 million from
accelerating the vesting of our former CFO’s equity awards pursuant
to separation benefits that became effective in January 2018.
 
(2) Included in this amount for the fourth quarter of 2018 are (i) a
gain on the extinguishment of an earn-out liability recorded in
connection with our acquisition of IAN in April 2018 which will not
be paid, (ii) acquisition-related expenses, comprised primarily of
expense associated with a two year retention agreement between key
management personnel of IAN, and (iii) costs incurred in connection
with reorganizing our key personnel and leadership.
 
Included in this amount for the third quarter of 2018 are
acquisition-related expenses, comprised primarily of expense
associated with a two year retention agreement between key
management personnel of IAN.
 
Included in this amount for the fourth quarter of 2017 are (i)
acquisition-related expenses, (ii) executive search expenses
incurred in connection with replacing the our CFO, and (iii)
expenses incurred in connection with the secondary offering of our
ordinary shares by affiliates of Francisco Partners (“FP”).
 
Included in this amount for fiscal year 2018 are (i) expenses
associated with separation benefits for our former CFO that became
effective in January 2018, (ii) a gain on the extinguishment of an
earn-out liability recorded in connection with our acquisition of
IAN in April 2018 which will not be paid, and (iii)
acquisition-related expenses, comprised primarily of expense
associated with a two year retention agreement between key
management personnel of IAN.
 
Included in this amount for fiscal year 2017 are (i)
acquisition-related expenses, (ii) expenses incurred in connection
with sales or other dispositions of our ordinary shares by
affiliates of FP, (iii) executive search expenses incurred in
connection with replacing our Chief Financial Officer, (iv) a refund
of previously paid consulting fees from FP Consulting (“FPC”), and
(v) a gain on sale of our investment in CHawk.
 
(3) We recorded $2.3 million in tax benefit in the fourth quarter of
2017 and $5.3 million in the third quarter of 2017 in connection
with our acquisitions of Talon and Cal-Weld, respectively.
 
(4) In the third quarter of 2017 we re-characterized intercompany debt
to equity between our U.S. and Singapore entities resulting in a tax
benefit of $1.6 million related to the reversal of previously
accrued withholding taxes.
 
(5) This adjustment represents the impact of U.S. corporate tax reform.
 
(6) Represents the release of a valuation allowance against our foreign
tax credit carryforwards we now expect to realize as a result of
additional analysis of the Tax Cuts and Jobs Act.
 
(7) During the second quarter of 2017, we corrected an error relating to
translated inventory balances at our Malaysia and Singapore
subsidiaries using an incorrect foreign currency rate. The error
arose in prior period financial statements beginning in periods
prior to 2014 and through 2016. The correction resulted in a $1.75
million increase in cost of sales and a corresponding decrease in
gross profit in our consolidated statement of operations and a
decrease to inventories in our consolidated balance sheet during the
second quarter of 2017.
 
(8) As part of our purchase price allocations for our acquisitions of
Cal-Weld in July 2017 and Talon in December 2017 and our preliminary
purchase price allocation for our acquisition of IAN in April 2018,
we recorded acquired-inventory at fair value, resulting in a fair
value step-up of $3.6 million, $6.2 million, and $0.3 million,
respectively. These amounts were subsequently released to cost of
sales as acquired-inventory was sold.
 
(9) During the third quarter of 2017, we received a final arbitration
ruling on our working capital claim with the sellers of Ajax. The
ruling was outside the one year measurement period and therefore
could not be considered an adjustment to goodwill, resulting in a
charge to selling, general, and administrative expense.
 

Contacts

Jeff Andreson, CFO 510-897-5200
Claire McAdams, IR 530-265-9899
IR@ichorsystems.com

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