ICHOR HOLDINGS, LTD. (ICHR)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 revenue grew 5% sequentially and 21% YoY to $244.5M, roughly in line with consensus, but non-GAAP EPS of $0.12 significantly missed Street expectations as gross margin flow-through underperformed due to higher-than-planned external sourcing, non-semi ramp costs, and the Scotland refurbishment exit .
• Management introduced Q2 guidance: revenue $225–$245M, GAAP EPS $(0.06)–$0.04, non-GAAP EPS $0.10–$0.22; it also guided Q2 gross margin to 12.5%–14% and signaled 2H gross margin of 15%–16%, while backing off prior confidence that FY gross margin would exceed 16% given Q1 miss and tariff uncertainty .
• The quarter’s key negative surprise was gross margin execution (“growing pains”) as internal component integration lagged procurement needs, forcing higher external buys and diluting expected savings; additional headwinds included a redesign and cost overrun on a new commercial space contract and the decision to exit Scotland .
• Medium-term catalysts include steady qualifications across valves, fittings, substrates and next-gen gas panels (aiming to have all four major customers qualified on three product families by year-end 2025), which underpin the case for sequential gross margin improvement through 2025 even on similar revenue .

What Went Well and What Went Wrong

• What Went Well

  • Top-line remained solid: revenue at $244.5M rose 5% QoQ and 21% YoY; management reiterated it expects to outperform WFE growth in 2025 .
  • Qualification pipeline progressing: a fourth substrate customer added; third valve qualification expected this summer; fourth fittings qualification targeted in 2H, with a milestone target of all four largest customers qualified across valves/fittings/substrates by year-end 2025 .
  • Operating discipline: OpEx of ~$23.7M was in line, with full-year OpEx growth moderated to 4%–6% vs previously 5%–7% .

• What Went Wrong

  • Gross margin execution: internal content ramp lagged demand at integration sites, forcing more external purchases and limiting margin flow-through; management called this “growing pains” and the primary reason margins missed plan .
  • Non-semi headwind: a commercial space contract encountered a redesign during pilot-to-production, pushing out revenue and raising initial costs, further pressuring margins .
  • Portfolio pruning: exit of the Scotland refurbishment operation (demand too low) slightly impacted revenue and gross margin; management sized Scotland at roughly ~$10M of revenue taken out of horizon on a full-year basis .

Financial Results

Core P&L metrics (quarters ordered oldest → newest)

Cash flow and liquidity KPIs (quarters ordered oldest → newest)

Q1 2025 actual vs consensus (S&P Global)

Values marked with * retrieved from S&P Global.

Guidance Changes

Additional comparison: Q1 2025 outcome vs prior guidance (issued Feb 4)

• Q1 guidance (Feb 4): Revenue $235–$255M; GAAP EPS $0.04–$0.16; Non-GAAP EPS $0.20–$0.32 .
• Q1 actual: Revenue $244.5M (in range); GAAP EPS $(0.13) (below); Non-GAAP EPS $0.12 (below) .

Earnings Call Themes & Trends

Management Commentary

• “The overall spending environment for semiconductor wafer fab equipment continues to be quite healthy… That said, the policy uncertainty playing out in Washington is beginning to challenge the clarity of demand visibility… leading us to take a more conservative view for the second quarter.” — Jeff Andreson, CEO .
• “The best way to capture the lower‑than‑expected flow‑through in our Q1 gross margin performance is best summed up as growing pain… we ended up purchasing far more external supply than we had forecasted… This impact accounts for about 2/3 of our gross margin miss in Q1.” — CEO .
• “By the end of 2025, we expect to have all 4 of our largest customers qualified on all 3 of our major product families, valves, fittings and substrates.” — CEO .
• “In February, we were confident that our gross margins for the full year would exceed 16%. Today, we are backing off that… We currently expect our second half gross margin will be in the 15% to 16% range.” — CEO .
• “We expect our Q2 gross margins will improve to a range of 12.5% to 14%… OpEx ~ $23.5M; FY OpEx +4%–6% YoY; FY non-GAAP ETR ~12.5%; FY net interest ~ $6M.” — CFO .

Q&A Highlights

• Internal content execution: management estimates it achieved ~75%–80% of planned internal sourcing; some external purchases persist in Q2, with better headcount and factory alignment underway .
• Revenue mix and outlook changes: Q2 guide about $10M below prior visibility, driven by multiple factors (one OEM affected by domestic device OEM slowing WFE ahead of tariff clarity, litho and advanced packaging timing shifts, continued SiC weakness), while core etch/dep remains stable; litho troughs in Q2 .
• Tariff exposure and mitigation: current exposure primarily Section 232 (steel) on U.S. inbound; Mexico exempt under USMCA; customers collaborating on pass-through; management working supply chain levers; CFO indicated the affected inbound is modest in scope .
• Operating expense cadence: OpEx to moderate slightly in 2H after front-half loaded costs; FY growth lowered to 4%–6% YoY from 5%–7% prior .
• Portfolio actions: Scotland refurbishment exit reflected declining licensed demand; management sized Scotland at roughly ~$10M of revenue removed from the go-forward view; not material to core dep/etch strategy .

Estimates Context

• Revenue was essentially in line: $244.5M vs consensus ~$245.0M* .
• EPS materially missed: $0.12 vs consensus ~$0.26*, driven by gross margin flow-through shortfall (higher external sourcing), non-semi ramp costs, and Scotland exit .
• Forward estimate implications: Near-term models likely need lower gross margin and EPS for Q2 and FY (given backed-off FY >16% GM), partially offset by confidence in sequential GM improvement and component qualification milestones supporting 2H margins .

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

• Revenue trajectory remains constructive (Q1 +5% QoQ, +21% YoY), with Ichor still positioned to outperform WFE in 2025; the negative surprise was entirely margin/earnings, not demand .
• The core issue is execution, not customer qualification: internal content demand is there, but factory supply/inventory timing forced external buys, diluting expected savings; management expects sequential GM improvement through 2025 as processes mature .
• Q2 outlook embeds conservative assumptions amid tariff uncertainty; watch for early-summer policy clarity and customer order timing shifts in lithography/advanced packaging .
• 2H margin recovery (15%–16%) is key to the bull case; successful next-gen gas panel and component qualifications across top customers are the structural drivers .
• Non-semi growing pains (commercial space redesign) and the Scotland exit are near-term EPS headwinds but help refocus on higher-return core .
• Balance sheet/liquidity are stable (cash ~$109M; positive FCF in Q1), with FY CapEx ~4% of revenue front-half weighted to support machining/globalization .
• For trading: the — bold — EPS miss vs consensus — bold — and reset to margin outlook are likely overhangs near term; catalysts to watch include Q2 GM delivery vs 12.5%–14% guidance, component qualification wins, and any tariff pass-through progress .