ichr-20230929

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 29, 2023


o			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

_________________________________________________________________________________________________________________________

ICHOR HOLDINGS, LTD.

(Exact Name of Registrant as Specified in its Charter)

_________________________________________________________________________________________________________________________


Cayman Islands						Not Applicable
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
3185 Laurelview Ct. Fremont, CA						94538
(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
Ordinary Shares, par value $0.0001	ICHR	The NASDAQ Stock Market LLC

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.

Large accelerated filer

Accelerated filer

Non‑accelerated filer

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 November 3, 2023, the registrant had 29,380,025 ordinary shares, $0.0001 par value per share, outstanding.

TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations	2
	Consolidated Statements of Shareholders' Equity	3
	Consolidated Statements of Cash Flows	5
	Notes to Consolidated Financial Statements	6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	14
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	24
ITEM 4.	CONTROLS AND PROCEDURES	25

PART II - OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	26
ITEM 1A.	RISK FACTORS	26
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	26
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	26
ITEM 4.	MINE SAFETY DISCLOSURES	26
ITEM 5.	OTHER INFORMATION	26
ITEM 6.	EXHIBITS	27

	SIGNATURES	28

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

ICHOR HOLDINGS, LTD.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)


	September 29, 2023		December 30, 2022
Assets
Current assets:
Cash and cash equivalents	$	75,933	$	86,470
Accounts receivable, net	103,350		136,321
Inventories	266,900		283,660
Prepaid expenses and other current assets	5,142		7,007
Total current assets	451,325		513,458
Property and equipment, net	96,240		98,055
Operating lease right-of-use assets	36,948		40,557
Other noncurrent assets	12,079		12,926
Deferred tax assets, net	1,934		11,322
Intangible assets, net	60,456		72,022
Goodwill	335,402		335,402
Total assets	$	994,384	$	1,083,742
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	74,011	$	110,165
Accrued liabilities	16,176		23,616
Other current liabilities	8,588		15,815
Current portion of long-term debt	7,500		7,500
Current portion of lease liabilities	9,393		9,196
Total current liabilities	115,668		166,292
Long-term debt, less current portion, net	272,942		293,218
Lease liabilities, less current portion	28,556		31,828
Deferred tax liabilities, net	29		29
Other non-current liabilities	4,510		4,879
Total liabilities	421,705		496,246
Shareholders’ equity:
Preferred shares ($0.0001 par value; 20,000,000 shares authorized; 0 shares issued and outstanding)	—		—
Ordinary shares ($0.0001 par value; 200,000,000 shares authorized; 29,375,388 and 28,861,949 shares outstanding, respectively; 33,812,827 and 33,299,388 shares issued, respectively)	3		3
Additional paid in capital	447,684		431,415
Treasury shares at cost (4,437,439 shares)	(91,578)		(91,578)
Retained earnings	216,570		247,656
Total shareholders’ equity	572,679		587,496
Total liabilities and shareholders’ equity	$	994,384	$	1,083,742

The accompanying notes are an integral part of these consolidated financial statements.

ICHOR HOLDINGS, LTD.

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(unaudited)


	Three Months Ended				Nine Months Ended
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
Net sales	$	196,761	$	355,643	$	607,639	$	978,349
Cost of sales	172,692		292,083		524,588		815,396
Gross profit	24,069		63,560		83,051		162,953
Operating expenses:
Research and development	5,188		4,859		14,689		14,617
Selling, general, and administrative	20,066		22,195		59,733		66,565
Amortization of intangible assets	3,639		3,959		11,565		13,963
Total operating expenses	28,893		31,013		85,987		95,145
Operating income (loss)	(4,824)		32,547		(2,936)		67,808
Interest expense, net	5,136		3,249		14,716		6,844
Other expense (income), net	29		(210)		913		(674)
Income (loss) before income taxes	(9,989)		29,508		(18,565)		61,638
Income tax expense	436		477		12,521		3,031
Net income (loss)	$	(10,425)	$	29,031	$	(31,086)	$	58,607
Net income (loss) per share
Basic	$	(0.36)	$	1.01	$	(1.07)	$	2.04
Diluted	$	(0.36)	$	1.00	$	(1.07)	$	2.02
Shares used to compute Net income (loss) per share:
Basic	29,297,347		28,769,135		29,132,879		28,675,898
Diluted	29,297,347		29,050,396		29,132,879		28,965,834

The accompanying notes are an integral part of these consolidated financial statements.

ICHOR HOLDINGS, LTD.

Consolidated Statements of Shareholders’ Equity

(in thousands, except share amounts)

(unaudited)


For the three months ending September 29, 2023	Ordinary Shares			Additional Paid-In Capital		Treasury Shares			Retained Earnings		Total Shareholders' Equity
	Shares	Amount				Shares	Amount
Balance at June 30, 2023	29,241,561	$	3	$	441,883	4,437,439	$	(91,578)	$	226,995	$	577,303
Ordinary shares issued from exercise of stock options	90,247	—		1,602		—	—		—		1,602
Ordinary shares issued from vesting of restricted share units	43,580	—		(553)		—	—		—		(553)

Share-based compensation expense	—	—		4,752		—	—		—		4,752
Net loss	—	—		—		—	—		(10,425)		(10,425)
Balance at September 29, 2023	29,375,388	$	3	$	447,684	4,437,439	$	(91,578)	$	216,570	$	572,679


For the nine months ending September 29, 2023	Ordinary Shares			Additional Paid-In Capital		Treasury Shares			Retained Earnings		Total Shareholders' Equity
	Shares	Amount				Shares	Amount
Balance at December 30, 2022	28,861,949	$	3	$	431,415	4,437,439	$	(91,578)	$	247,656	$	587,496
Ordinary shares issued from exercise of stock options	215,009	—		4,452		—	—		—		4,452
Ordinary shares issued from vesting of restricted share units	200,809	—		(2,882)		—	—		—		(2,882)
Ordinary shares issued from employee share purchase plan	97,621	—		2,033		—	—		—		2,033
Share-based compensation expense	—	—		12,666		—	—		—		12,666
Net loss	—	—		—		—	—		(31,086)		(31,086)
Balance at September 29, 2023	29,375,388	$	3	$	447,684	4,437,439	$	(91,578)	$	216,570	$	572,679

The accompanying notes are an integral part of these consolidated financial statements.

ICHOR HOLDINGS, LTD.

Consolidated Statements of Shareholders’ Equity

(in thousands, except share amounts)

(unaudited)


For the three months ending September 30, 2022	Ordinary Shares			Additional Paid-In Capital		Treasury Shares			Retained Earnings		Total Shareholders' Equity
	Shares	Amount				Shares	Amount
Balance at July 1, 2022	28,735,728	$	3	$	424,471	4,437,439	$	(91,578)	$	204,428	$	537,324
Ordinary shares issued from exercise of stock options	29,777	—		652		—	—		—		652
Ordinary shares issued from vesting of restricted share units	35,769	—		(881)		—	—		—		(881)

Share-based compensation expense	—	—		3,719		—	—		—		3,719
Net income	—	—		—		—	—		29,031		29,031
Balance at September 30, 2022	28,801,274	$	3	$	427,961	4,437,439	$	(91,578)	$	233,459	$	569,845


For the nine months ending September 30, 2022	Ordinary Shares			Additional Paid-In Capital		Treasury Shares			Retained Earnings		Total Shareholders' Equity
	Shares	Amount				Shares	Amount
Balance at December 31, 2021	28,551,160	$	3	$	417,438	4,437,439	$	(91,578)	$	174,852	$	500,715
Ordinary shares issued from exercise of stock options	77,545	—		1,690		—	—		—		1,690
Ordinary shares issued from vesting of restricted share units	130,504	—		(2,221)		—	—		—		(2,221)
Ordinary shares issued from employee share purchase plan	42,065	—		929		—	—		—		929
Share-based compensation expense	—	—		10,125		—	—		—		10,125
Net income	—	—		—		—	—		58,607		58,607
Balance at September 30, 2022	28,801,274	$	3	$	427,961	4,437,439	$	(91,578)	$	233,459	$	569,845

The accompanying notes are an integral part of these consolidated financial statements.

ICHOR HOLDINGS, LTD.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended
	September 29, 2023		September 30, 2022
Cash flows from operating activities:
Net income (loss)	$	(31,086)	$	58,607
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	26,036		26,743
Share-based compensation	12,666		10,125
Deferred income taxes	9,388		(3,022)
Amortization of debt issuance costs	349		349



Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net	32,971		(40,307)
Inventories	16,760		(54,525)
Prepaid expenses and other assets	8,610		4,031
Accounts payable	(34,756)		(18,508)
Accrued liabilities	(7,106)		6,823
Other liabilities	(13,774)		2,363
Net cash provided by (used in) operating activities	20,058		(7,321)
Cash flows from investing activities:
Capital expenditures	(13,239)		(22,458)
Cash paid for acquisitions, net of cash acquired	—		500



Net cash used in investing activities	(13,239)		(21,958)
Cash flows from financing activities:
Issuance of ordinary shares under share-based compensation plans	6,151		3,093
Employees' taxes paid upon vesting of restricted share units	(2,882)		(2,221)

Borrowings on revolving credit facility	—		25,000
Repayments on revolving credit facility	(15,000)		(10,000)

Repayments on term loan	(5,625)		(5,625)
Net cash provided by (used in) financing activities	(17,356)		10,247
Net decrease in cash	(10,537)		(19,032)
Cash at beginning of period	86,470		75,495
Cash at end of period	$	75,933	$	56,463
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	15,132	$	6,457
Cash paid during the period for taxes, net of refunds	$	3,852	$	2,335
Supplemental disclosures of non-cash activities:
Capital expenditures included in accounts payable	$	145	$	1,625
Right-of-use assets obtained in exchange for new operating lease liabilities, including those acquired through acquisitions	$	3,103	$	11,158

The accompanying notes are an integral part of these consolidated financial statements.

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 U.S. Securities and Exchange Commission'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 are each 52 weeks. References to 2023 and 2022 relate to the fiscal years then ended, respectively. The three-month periods ended September 29, 2023 and September 30, 2022 are each 13 weeks. References to the third 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.

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 product has transferred. Products are covered by a standard assurance warranty, generally extended for a period of one to two years depending on the customer, which promises that delivered products conform to contract specifications. As such, we account for such warranties under Accounting Standards Codification ("ASC") Topic 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 payment is generally due within 15-60 days of purchase. 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 herein.

Accounting Pronouncements Recently Adopted

In October 2021, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update ("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 ASC 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:


	September 29, 2023		December 30, 2022
Raw materials	$	201,991	$	197,726
Work in process	42,857		56,291
Finished goods	45,532		47,186
Excess and obsolete adjustment	(23,480)		(17,543)
Total inventories	$	266,900	$	283,660


Note 3 – Property and Equipment and Other Noncurrent Assets

Property and equipment consist of the following:


	September 29, 2023		December 30, 2022
Machinery	$	113,503	$	90,507
Leasehold improvements	45,296		43,129
Computer software, hardware, and equipment	10,613		9,664
Office furniture, fixtures, and equipment	1,495		1,337
Vehicles	397		401
Construction-in-process	6,038		19,869
	177,342		164,907
Less accumulated depreciation	(81,102)		(66,852)
Total property and equipment, net	$	96,240	$	98,055

Depreciation expense was $4.9 million and $4.4 million for the third quarter of 2023 and 2022, respectively, and $13.7 million and $12.8 million for the nine months ended September 29, 2023 and September 30, 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 have been those incurred to implement a new company-wide enterprise resource planning ("ERP") system. The balance of capitalized cloud computing implementation costs, net of accumulated amortization, was $10.8 million and $11.6 million as of September 29, 2023 and December 30, 2022, respectively, and is included in other assets on our consolidated balance sheets. The related amortization expense was $0.3 million and $0.2 million for the third quarter of 2023 and 2022, respectively, and $0.8 million and $0.6 million for the nine months ended September 29, 2023 and September 30, 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:


	September 29, 2023
	Gross value		Accumulated amortization		Accumulated impairment charges		Carrying amount		Weighted average useful life
Customer relationships	$	105,542	$	(50,782)	$	—	$	54,760	8.7 years
Developed technology	11,047		(5,351)		—		5,696		10.0 years
Total intangible assets	$	116,589	$	(56,133)	$	—	$	60,456


	December 30, 2022
	Gross value		Accumulated amortization		Accumulated impairment charges		Carrying amount		Weighted average useful life
Customer relationships	$	117,022	$	(51,337)	$	—	$	65,685	8.4 years
Developed technology	11,047		(4,710)		—		6,337		10.0 years
Total intangible assets	$	128,069	$	(56,047)	$	—	$	72,022


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 non-cancelable operating leases that expire at various dates during the years 2024 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				Nine Months Ended
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
Operating lease cost	$	2,384	$	2,120	$	7,188	$	6,404

Supplemental cash flow information related to leases is as follows:


	Nine Months Ended
	September 29, 2023		September 30, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	6,953	$	5,801

Supplemental balance sheet information related to leases is as follows:


	September 29, 2023	December 30, 2022
Weighted-average remaining lease term of operating leases	4.8 years	5.3 years
Weighted-average discount rate of operating leases	3.2%	3.0%

Future minimum lease payments under non-cancelable leases are as follows as of September 29, 2023:


2023, remaining	$	2,443
2024	9,212
2025	8,559
2026	8,113
2027	7,120
Thereafter	5,464
Total future minimum lease payments	40,911
Less imputed interest	(2,962)
Total lease liabilities	$	37,949


Note 6 – Income Taxes

Income tax information for the periods reported is as follows:


	Three Months Ended					Nine Months Ended
	September 29, 2023			September 30, 2022		September 29, 2023		September 30, 2022
Income tax expense	$	436		$	477	$	12,521	$	3,031
Income (loss) before income taxes	$	(9,989)		$	29,508	$	(18,565)	$	61,638
Effective income tax rate	(4.4)		%	1.6

SEC Form 10-Q filed by Ichor Holdings