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IH

ICHOR HOLDINGS, LTD. (ICHR)·Q4 2024 Earnings Summary

Executive Summary

  • Revenue landed at $233.3M, the high end of guidance, up 10% q/q and 15% y/y; however, gross margin compressed to 12.0% non-GAAP and EPS was $0.08 non-GAAP as Q4 absorbed hiring/training costs, inventory charges, and unfavorable mix toward build-to-print gas panel integration .
  • Management raised Q1 revenue high end to $255M (from $250M) and guided Q1 GM to 14–15% with non-GAAP EPS $0.20–$0.32; for 2025, they target GM ≥16% with 25–30% flow-through as proprietary content ramps (valves, fittings, substrates, next-gen gas panels) .
  • Q4 EPS/GM significantly missed prior Q4 guidance (non-GAAP EPS $0.21–$0.33, GM 14.5–15.5%); management framed the miss as largely one-time labor/inventory effects with residual into Q1, and expects GM to exceed 15% by Q2 2025 .
  • Demand backdrop improving: foundry/logic steady, DRAM/HBM stable-strong, and visible NAND recovery beginning, supporting Ichor’s view it can outgrow WFE in 2025; mix tailwinds plus proprietary content are the key stock catalysts near term .

What Went Well and What Went Wrong

  • What Went Well

    • Revenue accelerated to $233.3M, top end of guidance, +10% q/q and +15% y/y as demand inflected across etch/CVD with early NAND recovery; “weekly build rates” required rapid resourcing in Q4 .
    • Structural margin path intact: management reiterated 25–30% flow-through and expects GM 15–16% by Q2 and ≥16% for 2025, underpinned by proprietary content cut-ins and higher internal sourcing (valves, fittings, substrates; next-gen gas panels) .
    • Balance sheet de-risking continues: total debt declined to ~$129M (from ~$250M a year ago), cash $108.7M, DSOs improved to 34 days, and inventory turns rose to 3.4 .

  • What Went Wrong

    • Gross margin miss: non-GAAP GM 12.0% vs prior guide of 14.5–15.5%, driven by under-absorbed direct labor from late-quarter hiring/training, year-end inventory charges, and unfavorable mix to integration .
    • EPS miss vs guidance: non-GAAP EPS $0.08 vs prior $0.21–$0.33, reflecting the same cost/mix headwinds; management flagged residual labor impacts into Q1 before normalization by Q2 .
    • Mix headwind sensitivity: if upside skews to legacy gas panels, GM percentage can be muted, though internal content and better overhead absorption should offset more than in 2024 .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Millions)$203.5 $211.1 $233.3
Gross Margin (GAAP)10.0% 13.2% 11.6%
Gross Margin (Non-GAAP)10.4% 13.6% 12.0%
Operating Margin (GAAP)(3.9)% (0.2)% (0.5)%
Operating Margin (Non-GAAP)0.0% 3.0% 2.4%
Diluted EPS (GAAP)$(0.40) $(0.08) $(0.12)
Diluted EPS (Non-GAAP)$(0.06) $0.12 $0.08
Net Cash from Operating Activities ($M)$37.6 $8.6 $(2.5)
Free Cash Flow ($M)$35.3 $2.2 $(6.9)

Notes:

  • Non-GAAP definitions exclude amortization, SBC, and discrete items; reconciliations provided in exhibits .
  • Q4 cash from ops negative primarily due to ~$10.7M increase in inventories and higher receivables tied to growth; capex $4.4M drove negative FCF .

Segment/Breakdown: The company does not disclose segment revenues; core portfolio remains fluid delivery subsystems (gas and chemical) and precision components .

KPIs

KPIQ3 2024Q4 2024
DSOs (days)36 34
Inventory Turns (x)3.1 3.4
Cash & Equivalents ($M)$116.4 $108.7
Total Debt Outstanding ($M)~$130.3 (7.5 + 122.8) ~$129.0
Net Debt Coverage Ratio—1.6x

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)Q1 2025$235–$250 (Jan 13 prelim) $235–$255 (Feb 4) Raised high-end by $5M
Gross Margin (%)Q1 202513–15 (GAAP & non-GAAP) 14–15 (company commentary) Raised low-end by 100 bps
GAAP Diluted EPSQ1 2025Not provided $0.04–$0.16 New
Non-GAAP Diluted EPSQ1 2025“Sequential growth vs Q4” (no range) $0.20–$0.32 New
Operating Expenses (y/y)FY 2025+5% to +10% (prior modeling) +5% to +7% Lowered
Net Interest Expense ($)FY 2025~6M (outlook) ~6M (consistent) Maintained
Effective Tax Rate (%)FY 202512–15 ~12.5 Narrowed/lowered midpoint
Gross Margin (%)FY 2025—≥16% for full year; 15–16% by Q2 New framework
Revenue vs prior guideQ4 2024$220–$235 Actual $233.3 At high end
Non-GAAP EPS vs prior guideQ4 2024$0.21–$0.33 Actual $0.08 Miss
Non-GAAP GM vs prior guideQ4 202414.5–15.5 Actual 12.0 Miss

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024, Q3 2024)Current Period (Q4 2024)Trend
Proprietary content (valves, fittings, substrates; next-gen gas panels)Q2: margin expansion on similar revenue; new product qualifications gaining traction . Q3: >30 next-gen panels shipped with ~80% Ichor content; fittings qualified at 2 customers, valves qualified at 1; more quals underway .High-purity valves qualified at a second customer; fittings nearing third; substrates qualified at 3; >50 next-gen panels delivered in 2024; content cut-ins ramping in Q1 .Improving; accelerating cut-ins support GM/flow-through .
Gross margin trajectory and flow-throughQ2/Q3: at least 25% flow-through; Q4 GM guided 14.5–15.5% (ultimately missed) .Reaffirm 25–30%+ flow-through; GM 15–16% by Q2; ≥16% for 2025; Q4 miss due to under-absorbed labor, inventory charges, mix .Positive medium-term despite Q4 miss .
Demand/mix: Foundry/logic, DRAM/HBM, NANDQ3: NAND recovery earlier than expected; foundry/logic strong; DRAM stable .Foundry/logic remains strong; DRAM steady; NAND recovery starting and should persist into 1H25 .Improving NAND; stable/strong logic/DRAM .
China/Regional mixQ3: 2025 China WFE down; ex-China WFE outgrows total; net positive mix .China headwind incorporated; litho and SiC muted near term; offset by advanced packaging and other share gains .Mixed; manageable .
Tariffs/export controls—Tariff rules unclear; China content de minimis; Mexico exposure largely pass-through under cost-plus; no incremental export control impact expected .Limited fundamental risk .
Capacity and operating leverageQ3: leverage with volume; improved interest expense on deleveraging .Facility capacity “well north of $400M” annualized; people now ahead of demand; minimal additions needed for modest H2 growth .Positioned for operating leverage .

Management Commentary

  • “We believe the company can generate flow-through of 25% to 30% or more, enabling us to deliver gross margins in the 15% to 16% range by Q2 and exceeding 16% for 2025…” — CEO Jeff Andreson .
  • “Fourth quarter revenues were $233 million, aligning with the upper end of guidance… Gross margin declined to 12%… primarily due to higher direct manufacturing labor costs… higher-than-anticipated inventory charges… and unfavorable product mix…” — CFO Greg Swyt .
  • “Our high-purity valves were qualified at a second customer during Q4… proprietary fittings… in final stages of our third qualification… all 3 process tool customers have already qualified our substrates…” — CEO Jeff Andreson .
  • “With anticipated revenues [Q1] $235–$255 million, we expect gross margin in the range of 14% to 15%… We anticipate returning to gross margins above 15% by the second quarter and flow-through in the 25% to 30% range.” — CFO Greg Swyt .

Q&A Highlights

  • GM bridge for 2025: benefits split across proprietary product ramp, volume leverage, and elimination of Q4-specific headwinds; headwinds largely gone by Q2 .
  • Demand outlook: foundry/logic steady; DRAM stable; NAND inflecting into 1H25; management sees Q1≈Q2 levels with modest H2 up .
  • Mix sensitivity: upside skewed to legacy gas panels can mute GM percentage, but higher internal content and overhead absorption should offset more than in 2024 .
  • Capacity: facilities support “well north of $400M” run-rate; headcount largely in place; incremental growth manageable via productivity/overtime .
  • Policy risk: tariffs on Mexico largely pass-through; China export control impacts already incorporated into outlook .

Estimates Context

  • S&P Global consensus data could not be retrieved at this time due to provider limits; as a result, we cannot quantify beats/misses versus Street for Q4 or upcoming periods. Values from S&P Global were unavailable for inclusion at this time.
  • Directionally, Q4 non-GAAP EPS and GM missed company guidance despite revenue at the high end, suggesting Street EPS likely needs to move up for 2025 given higher GM trajectory, but Q4 actuals likely tracked below prior EPS expectations. Further model updates should reflect Q1 revenue high-end increase (+$5M), Q1 GM 14–15%, FY25 GM ≥16%, OpEx growth trimmed to +5–7%, and ~$6M 2025 net interest .

Key Takeaways for Investors

  • Revenue momentum resumed; structural GM expansion intact despite a noisy Q4: hiring/training and inventory charges depressed GM in Q4, but management guides back to >15% by Q2 and ≥16% for 2025 on proprietary content and volume leverage .
  • Proprietary content ramp is the central thesis: multiple component qualifications and >50 next-gen gas panels shipped in 2024 should drive flow-through of 25–30%+ and margin accretion across 2025 .
  • Demand mix tailwinds: steady foundry/logic, DRAM/HBM stability, and a visible NAND recovery into 1H25 support outgrowing WFE in 2025; modest H2 up adds incremental leverage .
  • Guidance upgraded where it matters near term: Q1 revenue high end raised to $255M; Q1 GM 14–15%; 2025 OpEx growth trimmed to +5–7% and tax rate ~12.5%—all supportive of higher EPS power vs prior modeling .
  • De-risked balance sheet enhances resilience: total debt cut to ~$129M, net debt coverage down to 1.6x; cash $108.7M provides flexibility through the ramp .
  • Watch mix and execution: if upside over-indexes to legacy gas panels, GM percent can be muted; mitigation depends on timing/scale of internal content cut-ins and next-gen panel ramps .
  • Near-term trading lens: expect the stock to key off GM recovery cadence (Q1 14–15%, Q2 >15%), proprietary content milestones, and corroborating NAND pickup; any confirmation of >16% 2025 GM and sustained internal content ramp are upside catalysts .