ICHOR HOLDINGS, LTD. [ICHR] Filings

10-Q 1 ichr-10q_20220401.htm 10-Q ichr-10q_20220401.htm

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 April 1, 2022

☐	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 ☒ No ☐

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 ☒ No ☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒

As of May 6, 2022, the registrant had 28,630,489 ordinary shares, $0.0001 par value per share, outstanding.

TABLE OF CONTENTS

PART I
ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	1
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	12
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	19
ITEM 4.	CONTROLS AND PROCEDURES	20

PART II
ITEM 1.	LEGAL PROCEEDINGS	21
ITEM 1A.	RISK FACTORS	21
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	21
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	21
ITEM 4.	MINE SAFETY DISCLOSURES	21
ITEM 5.	OTHER INFORMATION	21
ITEM 6.	EXHIBITS	21

SIGNATURES		22

PART I

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

ICHOR HOLDINGS, LTD.

Consolidated Balance Sheets

(dollars in thousands, except per share amounts)

(unaudited)

	April 1, 2022			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	34,516		$	75,495
Accounts receivable, net		153,534			142,990
Inventories		263,851			236,133
Prepaid expenses and other current assets		7,662			8,153
Total current assets		459,563			462,771
Property and equipment, net		86,003			85,204
Operating lease right-of-use assets		34,054			29,790
Other noncurrent assets		12,110			9,166
Deferred tax assets, net		8,153			8,116
Intangible assets, net		84,578			89,927
Goodwill		335,902			335,902
Total assets	$	1,020,363		$	1,020,876
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	142,866		$	159,727
Accrued liabilities		21,661			19,066
Other current liabilities		14,185			14,377
Current portion of long-term debt		7,500			7,500
Current portion of lease liabilities		7,854			7,633
Total current liabilities		194,066			208,303
Long-term debt, less current portion, net		283,495			285,253
Lease liabilities, less current portion		26,563			22,354
Deferred tax liabilities, net		38			38
Other non-current liabilities		4,372			4,213
Total liabilities		508,534			520,161
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; 28,628,907 and 28,551,160 shares outstanding, respectively; 33,066,346 and 32,988,599 shares issued, respectively)		3			3
Additional paid in capital		420,513			417,438
Treasury shares at cost (4,437,439 shares)		(91,578	)		(91,578	)
Retained earnings		182,891			174,852
Total shareholders’ equity		511,829			500,715
Total liabilities and shareholders’ equity	$	1,020,363		$	1,020,876

See accompanying notes.

ICHOR HOLDINGS, LTD.

Consolidated Statements of Operations

(dollars in thousands, except per share amounts)

(unaudited)

	Three Months Ended
	April 1, 2022		March 26, 2021
Net sales	$	293,146	$	264,566
Cost of sales		249,214		225,054
Gross profit		43,932		39,512
Operating expenses:
Research and development		4,851		3,515
Selling, general, and administrative		23,267		14,349
Amortization of intangible assets		5,349		3,391
Total operating expenses		33,467		21,255
Operating income		10,465		18,257
Interest expense, net		1,532		1,919
Other expense, net		84		185
Income before income taxes		8,849		16,153
Income tax expense		810		1,515
Net income	$	8,039	$	14,638
Net income per share:
Basic	$	0.28	$	0.52
Diluted	$	0.28	$	0.51
Shares used to compute net income per share:
Basic		28,592,629		28,004,248
Diluted		29,023,455		28,729,112

See accompanying notes.

ICHOR HOLDINGS, LTD.

Consolidated Statements of Shareholders’ Equity

(dollars in thousands)

(unaudited)

					Additional			Treasury							Total
For the three months ending April 1, 2022	Ordinary Shares				Paid-In			Shares					Retained		Shareholders'
	Shares		Amount		Capital			Shares		Amount			Earnings		Equity
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		42,753		—		955			—		—			—		955
Ordinary shares issued from vesting of restricted share units		34,994		—		(777	)		—		—			—		(777	)
Share-based compensation expense		—		—		2,897			—		—			—		2,897
Net income		—		—		—			—		—			8,039		8,039
Balance at April 1, 2022		28,628,907	$	3	$	420,513			4,437,439	$	(91,578	)	$	182,891	$	511,829

					Additional			Treasury							Total
For the three months ending March 26, 2021	Ordinary Shares				Paid-In			Shares					Retained		Shareholders'
	Shares		Amount		Capital			Shares		Amount			Earnings		Equity
Balance at December 25, 2020		27,907,077	$	3	$	399,311			4,437,439	$	(91,578	)	$	103,953	$	411,689
Ordinary shares issued from exercise of stock options		105,600		—		2,381			—		—			—		2,381
Ordinary shares issued from vesting of restricted share units		30,423		—		(667	)		—		—			—		(667	)
Ordinary shares issued from employee share purchase plan		27,151		—		606			—		—			—		606
Share-based compensation expense		—		—		2,415			—		—			—		2,415
Net income		—		—		—			—		—			14,638		14,638
Balance at March 26, 2021		28,070,251	$	3	$	404,046			4,437,439	$	(91,578	)	$	118,591	$	431,062

See accompanying notes.

ICHOR HOLDINGS, LTD.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Three Months Ended
	April 1, 2022			March 26, 2021
Cash flows from operating activities:
Net income	$	8,039		$	14,638
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		9,315			5,657
Share-based compensation		2,897			2,415
Deferred income taxes		(37	)		512
Amortization of debt issuance costs		117			242
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net		(10,544	)		(7,697	)
Inventories		(27,718	)		(9,306	)
Prepaid expenses and other assets		(650	)		512
Accounts payable		(18,209	)		22,101
Accrued liabilities		2,182			(3,467	)
Other liabilities		(1,670	)		41
Net cash provided by (used in) operating activities		(36,278	)		25,648
Cash flows from investing activities:
Capital expenditures		(3,417	)		(5,400	)
Net cash used in investing activities		(3,417	)		(5,400	)
Cash flows from financing activities:
Issuance of ordinary shares under share-based compensation plans		1,368			2,654
Employees' taxes paid upon vesting of restricted share units		(777	)		(667	)
Repayments on revolving credit facility		—			(30,000	)
Repayments on term loan		(1,875	)		(2,188	)
Net cash used in financing activities		(1,284	)		(30,201	)
Net decrease in cash		(40,979	)		(9,953	)
Cash at beginning of period		75,495			252,899
Cash at end of period	$	34,516		$	242,946
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	1,395		$	1,842
Cash paid during the period for taxes, net of refunds	$	106		$	667
Supplemental disclosures of non-cash activities:
Capital expenditures included in accounts payable	$	2,278		$	2,273
Right-of-use assets obtained in exchange for new operating lease liabilities, including those acquired through acquisitions	$	6,067		$	364

See accompanying notes.

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 31, 2021.

Year End

We use a 52- or 53-week fiscal year ending on the last Friday in December. The three months ended April 1, 2022 and March 26, 2021 were both 13 weeks. References to the first quarter of 2022 and 2021 refer to the three-month periods then ended. References to fiscal year 2022 and 2021 refer to our fiscal years ending December 30, 2022 and December 31, 2021, respectively. Fiscal year 2022 and 2021 are 52 and 53 weeks, respectively.

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, uncertain tax positions, fair value assigned to stock options granted, 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 promised good 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 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. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of the ASU should be applied prospectively. Early adoption is also permitted, including adoption in an interim period. If early adopted, the amendments are applied retrospectively to all business combinations for which the acquisition date occurred during the fiscal year of adoption. This ASU is currently not expected to have a material impact on our consolidated financial statements.

Note 2 – Inventories

Inventories consist of the following:

	April 1, 2022			December 31, 2021
Raw materials	$	180,541		$	159,366
Work in process		66,912			62,537
Finished goods		31,336			28,281
Excess and obsolete adjustment		(14,938	)		(14,051	)
Total inventories	$	263,851		$	236,133

Note 3 – Property and Equipment and Other Noncurrent Assets

Property and equipment consist of the following:

	April 1, 2022			December 31, 2021
Machinery	$	82,742		$	80,953
Leasehold improvements		37,174			36,706
Computer software, hardware, and equipment		8,031			8,031
Office furniture, fixtures and equipment		1,169			1,168
Vehicles		284			284
Construction-in-process		11,054			8,565
		140,454			135,707
Less accumulated depreciation		(54,451	)		(50,503	)
Total property and equipment, net	$	86,003		$	85,204

Depreciation expense was $4.0 million and $2.3 million for the first quarter of 2022 and 2021, 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 following table summarizes capitalized cloud computing implementation costs:

Capitalized cloud computing implementation costs as of December 31, 2021	$	8,054
Costs capitalized during the period		3,074
Capitalized costs amortized during the period		(152	)
Capitalized cloud computing implementation costs as of April 1, 2022	$	10,976

Note 4 – Intangible Assets

Definite‑lived intangible assets consist of the following:

	April 1, 2022
	Gross value		Accumulated amortization			Accumulated impairment charges		Carrying amount		Weighted average useful life
Customer relationships		120,962		(44,355	)		—		76,607	8.5 years
Developed technology		11,047		(3,755	)		—		7,292	10.0 years
Order backlog		2,600		(1,921	)		—		679	6 months
Total intangible assets	$	134,609	$	(50,031	)	$	—	$	84,578

	December 31, 2021
	Gross value		Accumulated amortization			Accumulated impairment charges		Carrying amount		Weighted average useful life
Customer relationships		146,569		(65,953	)		—		80,616	8.7 years
Developed technology		11,047		(3,483	)		—		7,564	10.0 years
Order backlog		2,600		(853	)		—		1,747	6 months
Total intangible assets	$	160,216	$	(70,289	)	$	—	$	89,927

Note 5 – Leases

Operating lease 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-cancellable 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-cancellable 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. As of April 1, 2022, we had one operating lease executed for which the rental period had not yet commenced.

The components of lease expense are as follows:

Three Months Ended

April 1,

2022

March 26,

2021

Operating lease cost

2,045

1,381

Supplemental cash flow information related to leases is as follows:

	Three Months Ended
	April 1, 2022		March 26, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,823	$	1,376

Supplemental balance sheet information related to leases is as follows:

April 1,

2022

March 26,

2021

Weighted-average remaining lease term of operating leases

5.8 years

2.2 years

Weighted-average discount rate of operating leases

2.2%

4.4%

Future minimum lease payments under non-cancelable leases as of April 1, 2022 are as follows:

2022, remaining	$	6,209
2023		6,451
2024		5,711
2025		5,333
2026		4,857
Thereafter		7,917
Total future minimum lease payments		36,478
Less imputed interest		(2,061	)
Total lease liabilities	$	34,417

Note 6 – Income Taxes

Income tax information for the periods reported are as follows:

	Three Months Ended
	April 1, 2022			March 26, 2021
Income tax expense	$	810		$	1,515
Income before income taxes	$	8,849		$	16,153
Effective income tax rate		9.2	%		9.4	%

Our effective tax rates for the first quarter of 2022 and 2021 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, and the impact of share-based compensation activity during the quarter.

The ending balance for the unrecognized tax benefits for uncertain tax positions was approximately $3.6 million at April 1, 2022. 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 April 1, 2022, we were not under examination by tax authorities.

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 $1.0 million and $0.6 million for the first quarter of 2022 and 2021, respectively.

Note 8 – Long-Term Debt

Long‑term debt consists of the following:

	April 1, 2022			December 31, 2021
Term loan	$	148,125		$	150,000
Revolving credit facility		145,000			145,000
Total principal amount of long-term debt		293,125			295,000
Less unamortized debt issuance costs		(2,130	)		(2,247	)
Total long-term debt, net		290,995			292,753
Less current portion		(7,500	)		(7,500	)
Total long-term debt, less current portion, net	$	283,495		$	285,253

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.

Interest is charged at either the Base Rate or the Bloomberg Short-Term Bank Yield (“BSBY”) Rate (as such terms are defined in the credit agreement) at our option, plus an applicable margin. The Base Rate is equal to the higher of i) the Prime Rate, ii) the Federal Funds Rate plus 0.5%, or iii) the BSBY Rate plus 1.00%. The applicable margin on Base Rate and BSBY Rate loans is 0.375‑1.375% and 1.375‑2.375% per annum, respectively, depending on our leverage ratio. We are also charged a commitment fee of 0.175%-0.350% on the unused portion of our revolving credit facility. Base Rate interest payments and commitment fees are due quarterly. BSBY Rate interest payments are due on the last day of the applicable interest period, or quarterly for applicable interest periods longer than 3 months. At April 1, 2022, our credit facilities bore interest under the BSBY rate option of 2.01%.

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, employees may elect to have shares 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 $2.9 million and $2.4 million for the first quarter of 2022 and 2021.

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 31, 2021		921,469	$	23.20
Granted		—	$	—

ICHOR HOLDINGS, LTD. [ICHR] Filings
10-Q	[2022-05-11]
10-K	[2022-02-28]
10-Q	[2021-11-03]
10-Q	[2021-08-04]
10-Q	[2021-05-05]
10-K	[2021-03-05]
10-Q	[2020-11-03]
10-Q	[2020-08-04]
10-Q	[2020-05-05]
10-K	[2020-03-06]
10-Q	[2019-11-06]
10-Q	[2019-08-07]
10-Q	[2019-05-08]
10-K	[2019-03-08]
10-Q	[2018-11-07]
10-Q	[2018-08-08]
10-Q	[2018-05-09]
10-K	[2018-03-13]
10-Q	[2017-11-13]
10-Q	[2017-08-11]
S-1	[2017-08-01]
10-Q	[2017-05-12]
S-1	[2017-04-13]
10-K	[2017-03-28]
S-1	[2016-11-14]