Ichor (ICHR) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The second quarter revenues were $185 million, which is an 18% decline from Q1 but at the upper end of expectations [22][55] - Gross margin was 14.5%, consistent with expectations of just under 20% flow-through on the revenue decline [22][55] - Net earnings for the quarter were$ 0.02 per share, exceeding prior expectations of a breakeven quarter [7][55] - Interest expense is expected to increase to approximately $5.3 million due to higher interest rates [9] Business Line Data and Key Metrics Changes - The company has seen increased demand in trailing nodes, logic, and high-bandwidth memory, but this is offset by softening demand in leading-edge logic and slower build schedules in areas like EUV lithography [2][68] - Incremental gross margin flow-through expectations are approximately 25% on increasing revenues, which is expected to drive Q3 gross margin improvement to the high 14s level [24][55] Market Data and Key Metrics Changes - The company is less exposed to the memory market than before, estimating current exposure to be less than 25% compared to 40% in 2022 [56] - The component side of the business is expected to take longer to recover, with inventory levels at OEM customers still not matching demand [46][68] Company Strategy and Development Direction - The company is focusing on driving share gains for proprietary products and making investments in new offerings that support long-term technology roadmaps [69] - The company is reviewing its Japan strategy to accelerate results in that region and developing new components for the market expected to be leased in 2024 [4][69] Management's Comments on Operating Environment and Future Outlook - Management views the second quarter of 2023 as the trough quarter, with modest sequential growth expected as the year progresses [2] - The overall outlook for 2023 remains largely unchanged, with expectations of a revenue decline of 20% to 25% due to various factors [68] - Management remains optimistic about a strong snapback of demand as the industry recovers, particularly in the silicon carbide market [56][68] Other Important Information - The company generated$ 27 million of cash flow from operations, with free cash flow for the quarter at $23 million [73] - The company plans to maintain a nominal non-GAAP tax expense each quarter, with a projected net tax benefit of$ 4 million to $5 million for fiscal 2023 [75] Q&A Session Summary Question: Can you discuss the design activity for the new gas panels? - Management indicated that there is both a cost advantage and a technology advantage that has attracted initial customers [16] Question: Are you where you want to be regarding resizing headcount and expense structure? - Management stated that they have right-sized the workforce to meet expected demand and are taking a guarded approach to operating expenses while continuing R&D investments [17] Question: What is the status of inventory levels with OEM customers? - Management noted that inventory levels are still not matching demand and that the component side of the business will take longer to recover [46] Question: What areas do you think will allow you to grow faster than the industry? - Management highlighted silicon carbide as a significant growth driver and mentioned that they expect to see growth year-over-year in that area [47][68] Question: Can you elaborate on the actions being taken to accelerate penetration in the Japanese market? - Management is reviewing their strategy and developing new components for the market to enhance results [4][69] Question: What is the expected cash generation for Q3 and potential debt reduction? - Management expects to generate enough cash flow to service the business and address some debt in the quarter [109][110]