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 JuneMarch 30, 20172018
OR
☐ | 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 |
3185 Laurelview Ct. Fremont, CA | 94538 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (510) 897‑5200
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act.
Large accelerated filer |
| ☐ |
| Accelerated filer |
| ☐ |
|
|
|
| |||
Non‑accelerated filer |
| ☒ (Do not check if a small reporting company) |
| 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 August 4, 2017,May 1, 2018, the registrant had 25,115,85225,664,553 ordinary shares, $0.0001 par value per share, outstanding.
PART I |
|
|
ITEM 1. | 1 | |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|
ITEM 3. | 20 | |
ITEM 4. | 20 | |
|
|
|
PART II |
|
|
ITEM 1. | 21 | |
ITEM 1A. | 21 | |
ITEM 2. |
| |
ITEM 3. |
| |
ITEM 4. | 22 | |
ITEM 5. | 22 | |
ITEM 6. | 22 | |
|
| |
23 |
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ICHOR HOLDINGS, LTD.
(dollars in thousands, except share and per share data)amounts)
|
| June 30, 2017 |
|
| December 30, 2016 |
|
| March 30, 2018 |
|
| December 29, 2017 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | 65,044 |
|
| $ | 50,854 |
|
| $ | 63,796 |
|
| $ | 68,794 |
|
Restricted cash |
|
| 1,794 |
|
|
| 1,794 |
|
|
| — |
|
|
| 510 |
|
Accounts receivable, net |
|
| 39,818 |
|
|
| 26,401 |
|
|
| 76,199 |
|
|
| 49,249 |
|
Inventories |
|
| 96,995 |
|
|
| 70,881 |
| ||||||||
Inventories, net |
|
| 164,623 |
|
|
| 154,541 |
| ||||||||
Prepaid expenses and other current assets |
|
| 4,857 |
|
|
| 7,061 |
|
|
| 5,260 |
|
|
| 5,357 |
|
Current assets from discontinued operations |
|
| 35 |
|
|
| 99 |
|
|
| — |
|
|
| 3 |
|
Total current assets |
|
| 208,543 |
|
|
| 157,090 |
|
|
| 309,878 |
|
|
| 278,454 |
|
Property and equipment, net |
|
| 14,895 |
|
|
| 12,018 |
|
|
| 36,286 |
|
|
| 34,380 |
|
Other noncurrent assets |
|
| 1,199 |
|
|
| 3,574 |
|
|
| 782 |
|
|
| 1,052 |
|
Deferred tax assets |
|
| 733 |
|
|
| 570 |
|
|
| 994 |
|
|
| 994 |
|
Intangible assets, net |
|
| 28,548 |
|
|
| 32,146 |
|
|
| 69,526 |
|
|
| 73,405 |
|
Goodwill |
|
| 77,071 |
|
|
| 77,093 |
|
|
| 168,412 |
|
|
| 169,399 |
|
Total assets |
| $ | 330,989 |
|
| $ | 282,491 |
|
| $ | 585,878 |
|
| $ | 557,684 |
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 101,493 |
|
| $ | 88,531 |
|
| $ | 130,383 |
|
| $ | 121,405 |
|
Accrued liabilities |
|
| 6,479 |
|
|
| 6,554 |
|
|
| 11,492 |
|
|
| 12,211 |
|
Other current liabilities |
|
| 7,476 |
|
|
| 5,421 |
|
|
| 7,137 |
|
|
| 6,715 |
|
Current portion of long-term debt |
|
| 6,563 |
|
|
| 6,490 |
| ||||||||
Current liabilities from discontinued operations |
|
| 776 |
|
|
| 564 |
|
|
| — |
|
|
| 400 |
|
Total current liabilities |
|
| 116,224 |
|
|
| 101,070 |
|
|
| 155,575 |
|
|
| 147,221 |
|
Long-term debt, net of current portion |
|
| 38,208 |
|
|
| 37,944 |
| ||||||||
Long-term debt, less current portion, net |
|
| 181,042 |
|
|
| 180,247 |
| ||||||||
Deferred tax liabilities |
|
| 462 |
|
|
| 606 |
|
|
| 10,628 |
|
|
| 10,558 |
|
Other non-current liabilities |
|
| 1,327 |
|
|
| 1,173 |
|
|
| 2,950 |
|
|
| 2,896 |
|
Non-current liabilities from discontinued operations |
|
| 30 |
|
|
| 39 |
| ||||||||
Total liabilities |
|
| 156,251 |
|
|
| 140,832 |
|
|
| 350,195 |
|
|
| 340,922 |
|
Shareholders’ equity |
|
|
|
|
|
|
|
| ||||||||
Preferred shares ($0.0001 par value; 20,000,000 shares authorized; no shares issued and outstanding) |
|
| — |
|
|
| — |
| ||||||||
Ordinary shares ($0.0001 par value; 200,000,000 shares authorized; 25,056,188 and 23,857,381 shares issued and outstanding, respectively) |
|
| 3 |
|
|
| 2 |
| ||||||||
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; 26,083,585 and 25,892,162 shares outstanding, respectively; 26,279,335 and 25,892,162 shares issued, respectively) |
|
| 3 |
|
|
| 3 |
| ||||||||
Additional paid in capital |
|
| 206,427 |
|
|
| 196,049 |
|
|
| 221,897 |
|
|
| 214,697 |
|
Accumulated deficit |
|
| (31,692 | ) |
|
| (54,392 | ) | ||||||||
Treasury shares (195,750 and zero shares, respectively) |
|
| (5,000 | ) |
|
| — |
| ||||||||
Retained earnings |
|
| 18,783 |
|
|
| 2,062 |
| ||||||||
Total shareholders’ equity |
|
| 174,738 |
|
|
| 141,659 |
|
|
| 235,683 |
|
|
| 216,762 |
|
Total liabilities and shareholders’ equity |
| $ | 330,989 |
|
| $ | 282,491 |
|
| $ | 585,878 |
|
| $ | 557,684 |
|
See accompanying notes.
1
Consolidated Statements of Operations
(dollars in thousands, except share and per share data)amounts)
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| March 30, 2018 |
|
| March 31, 2017 |
| ||||||
Net sales |
| $ | 159,733 |
|
| $ | 95,365 |
|
| $ | 308,437 |
|
| $ | 168,652 |
|
| $ | 258,029 |
|
| $ | 148,704 |
|
Cost of sales |
|
| 136,227 |
|
|
| 80,185 |
|
|
| 260,916 |
|
|
| 141,547 |
|
|
| 215,430 |
|
|
| 124,689 |
|
Gross profit |
|
| 23,506 |
|
|
| 15,180 |
|
|
| 47,521 |
|
|
| 27,105 |
|
|
| 42,599 |
|
|
| 24,015 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 1,950 |
|
|
| 1,290 |
|
|
| 3,694 |
|
|
| 2,665 |
|
|
| 2,452 |
|
|
| 1,744 |
|
Selling, general, and administrative |
|
| 7,984 |
|
|
| 7,183 |
|
|
| 14,842 |
|
|
| 13,547 |
|
|
| 15,711 |
|
|
| 6,858 |
|
Amortization of intangible assets |
|
| 1,803 |
|
|
| 1,803 |
|
|
| 3,598 |
|
|
| 3,406 |
|
|
| 3,879 |
|
|
| 1,795 |
|
Total operating expenses |
|
| 11,737 |
|
|
| 10,276 |
|
|
| 22,134 |
|
|
| 19,618 |
|
|
| 22,042 |
|
|
| 10,397 |
|
Operating income |
|
| 11,769 |
|
|
| 4,904 |
|
|
| 25,387 |
|
|
| 7,487 |
|
|
| 20,557 |
|
|
| 13,618 |
|
Interest expense, net |
|
| 675 |
|
|
| 1,160 |
|
|
| 1,365 |
|
|
| 2,062 |
| ||||||||
Interest expense |
|
| 2,504 |
|
|
| 690 |
| ||||||||||||||||
Other expense (income), net |
|
| 151 |
|
|
| 244 |
|
|
| (398 | ) |
|
| (143 | ) |
|
| 241 |
|
|
| (549 | ) |
Income from continuing operations before income taxes |
|
| 10,943 |
|
|
| 3,500 |
|
|
| 24,420 |
|
|
| 5,568 |
|
|
| 17,812 |
|
|
| 13,477 |
|
Income tax expense from continuing operations |
|
| 473 |
|
|
| 225 |
|
|
| 998 |
|
|
| 461 |
|
|
| 1,091 |
|
|
| 525 |
|
Net income from continuing operations |
|
| 10,470 |
|
|
| 3,275 |
|
|
| 23,422 |
|
|
| 5,107 |
|
|
| 16,721 |
|
|
| 12,952 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations before taxes |
|
| (610 | ) |
|
| (2,305 | ) |
|
| (721 | ) |
|
| (4,029 | ) |
|
| — |
|
|
| (111 | ) |
Income tax expense from discontinued operations |
|
| — |
|
|
| 2 |
|
|
| 1 |
|
|
| 3 |
|
|
| — |
|
|
| 1 |
|
Net loss from discontinued operations |
|
| (610 | ) |
|
| (2,307 | ) |
|
| (722 | ) |
|
| (4,032 | ) |
|
| — |
|
|
| (112 | ) |
Net income |
|
| 9,860 |
|
|
| 968 |
|
|
| 22,700 |
|
|
| 1,075 |
|
| $ | 16,721 |
|
| $ | 12,840 |
|
Less: Undistributed earnings attributable to preferred shareholders |
|
| — |
|
|
| (963 | ) |
|
| — |
|
|
| (1,070 | ) | ||||||||
Net income attributable to ordinary shareholders |
| $ | 9,860 |
|
| $ | 5 |
|
| $ | 22,700 |
|
| $ | 5 |
| ||||||||
Net income per share from continuing operations attributable to ordinary shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net income per share from continuing operations: |
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | 0.42 |
|
| $ | 0.19 |
|
| $ | 0.95 |
|
| $ | 0.29 |
|
| $ | 0.64 |
|
| $ | 0.53 |
|
Diluted |
| $ | 0.40 |
|
| $ | 0.06 |
|
| $ | 0.91 |
|
| $ | 0.08 |
|
| $ | 0.63 |
|
| $ | 0.51 |
|
Net income per share attributable to ordinary shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net income per share: |
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | 0.40 |
|
| $ | 0.06 |
|
| $ | 0.92 |
|
| $ | 0.07 |
|
| $ | 0.64 |
|
| $ | 0.52 |
|
Diluted |
| $ | 0.38 |
|
| $ | 0.02 |
|
| $ | 0.88 |
|
| $ | 0.02 |
|
| $ | 0.63 |
|
| $ | 0.50 |
|
Shares used to compute net income from continuing operations per share attributable to ordinary shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Shares used to compute net income from continuing operations per share: |
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
|
| 24,848,365 |
|
|
| 85,589 |
|
|
| 24,751,390 |
|
|
| 75,631 |
|
|
| 26,030,298 |
|
|
| 24,654,415 |
|
Diluted |
|
| 26,063,527 |
|
|
| 277,554 |
|
|
| 25,868,403 |
|
|
| 285,066 |
|
|
| 26,734,710 |
|
|
| 25,640,089 |
|
Shares used to compute net income per share attributable to ordinary shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Shares used to compute net income per share: |
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
|
| 24,848,365 |
|
|
| 85,589 |
|
|
| 24,751,390 |
|
|
| 75,631 |
|
|
| 26,030,298 |
|
|
| 24,654,415 |
|
Diluted |
|
| 26,063,527 |
|
|
| 277,554 |
|
|
| 25,868,403 |
|
|
| 285,066 |
|
|
| 26,734,710 |
|
|
| 25,640,089 |
|
See accompanying notes.
2
Consolidated Statements of Shareholders’ Equity
(dollars in thousands, except share data)thousands)
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
| Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Ordinary Shares |
|
| Paid-In |
|
| Accumulated |
|
| Shareholders’ |
|
|
|
|
|
|
|
|
|
| Additional |
|
| Treasury |
|
|
|
|
|
| Total |
| |||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Equity |
|
| Ordinary Shares |
|
| Paid-In |
|
| Shares |
|
| Retained |
|
| Shareholders' |
| ||||||||||||||||||
Balance at December 30, 2016 |
|
| 23,857,381 |
|
| $ | 2 |
|
| $ | 196,049 |
|
| $ | (54,392 | ) |
| $ | 141,659 |
| ||||||||||||||||||||||||||||
Ordinary shares issued from initial public offering, net of transaction costs |
|
| 881,667 |
|
|
| 1 |
|
|
| 7,277 |
|
|
| — |
|
|
| 7,278 |
| ||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Shares |
|
| Amount |
|
| Earnings |
|
| Equity |
| |||||||||||||||||||||||||||
Balance at December 29, 2017 |
|
| 25,892,162 |
|
| $ | 3 |
|
| $ | 214,697 |
|
|
| — |
|
| $ | — |
|
| $ | 2,062 |
|
| $ | 216,762 |
| ||||||||||||||||||||
Ordinary shares issued from exercise of stock options |
|
| 264,697 |
|
|
| — |
|
|
| 2,188 |
|
|
| — |
|
|
| 2,188 |
|
|
| 325,969 |
|
|
| — |
|
|
| 3,232 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,232 |
|
Ordinary shares issued from vesting of restricted share units |
|
| 52,443 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 50,423 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Ordinary shares issued from employee share purchase plan |
|
| 10,781 |
|
|
| — |
|
|
| 177 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 177 |
| ||||||||||||||||||||
Repurchase of ordinary shares |
|
| (195,750 | ) |
|
| — |
|
|
| — |
|
|
| 195,750 |
|
|
| (5,000 | ) |
|
| — |
|
|
| (5,000 | ) | ||||||||||||||||||||
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| 913 |
|
|
| — |
|
|
| 913 |
|
|
| — |
|
|
| — |
|
|
| 3,791 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,791 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 22,700 |
|
|
| 22,700 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16,721 |
|
|
| 16,721 |
|
Balance at June 30, 2017 |
|
| 25,056,188 |
|
| $ | 3 |
|
| $ | 206,427 |
|
| $ | (31,692 | ) |
| $ | 174,738 |
| ||||||||||||||||||||||||||||
Balance at March 30, 2018 |
|
| 26,083,585 |
|
| $ | 3 |
|
| $ | 221,897 |
|
|
| 195,750 |
|
| $ | (5,000 | ) |
| $ | 18,783 |
|
| $ | 235,683 |
|
See accompanying notes.
3
Consolidated Statements of Cash Flows
(in thousands)
|
| Six Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| March 30, 2018 |
|
| March 31, 2017 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 22,700 |
|
| $ | 1,075 |
|
| $ | 16,721 |
|
| $ | 12,840 |
|
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 5,185 |
|
|
| 4,621 |
|
|
| 5,752 |
|
|
| 2,485 |
|
Gain on sale of investments and settlement of note receivable |
|
| (241 | ) |
|
| — |
|
|
| — |
|
|
| (241 | ) |
Share-based compensation |
|
| 913 |
|
|
| 972 |
|
|
| 3,791 |
|
|
| 344 |
|
Deferred income taxes |
|
| (224 | ) |
|
| (175 | ) |
|
| (127 | ) |
|
| (75 | ) |
Amortization of debt issuance costs |
|
| 264 |
|
|
| 263 |
|
|
| 333 |
|
|
| 132 |
|
Changes in operating assets and liabilities, net of assets acquired: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
| (13,417 | ) |
|
| (10,732 | ) |
|
| (26,350 | ) |
|
| (22,661 | ) |
Inventories |
|
| (26,114 | ) |
|
| 1,288 |
|
|
| (10,470 | ) |
|
| (20,063 | ) |
Prepaid expenses and other assets |
|
| 2,462 |
|
|
| (1,260 | ) |
|
| 370 |
|
|
| (1,505 | ) |
Accounts payable |
|
| 13,592 |
|
|
| 9,320 |
|
|
| 8,731 |
|
|
| 17,904 |
|
Accrued liabilities |
|
| 197 |
|
|
| 1,116 |
|
|
| (974 | ) |
|
| (2,202 | ) |
Other liabilities |
|
| 2,191 |
|
|
| (2,578 | ) |
|
| 1,439 |
|
|
| 1,365 |
|
Net cash provided by operating activities |
|
| 7,508 |
|
|
| 3,910 |
| ||||||||
Net cash used in operating activities |
|
| (784 | ) |
|
| (11,677 | ) | ||||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (5,214 | ) |
|
| (804 | ) |
|
| (3,668 | ) |
|
| (2,274 | ) |
Cash paid for acquisitions, net of cash acquired |
|
| — |
|
|
| (17,406 | ) | ||||||||
Proceeds from sale of intangible assets |
|
| — |
|
|
| 230 |
| ||||||||
Proceeds from sale of property, plant, and equipment |
|
| — |
|
|
| 243 |
| ||||||||
Proceeds from sale of investments and settlement note receivable |
|
| 2,430 |
|
|
| — |
|
|
| — |
|
|
| 2,430 |
|
Net cash used in investing activities |
|
| (2,784 | ) |
|
| (17,737 | ) | ||||||||
Net cash provided by (used in) investing activities |
|
| (3,668 | ) |
|
| 156 |
| ||||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of ordinary shares, net of fees |
|
| 7,278 |
|
|
| — |
|
|
| — |
|
|
| 7,277 |
|
Proceeds from exercise of stock options |
|
| 2,188 |
|
|
| — |
| ||||||||
Borrowings under revolving commitment |
|
| — |
|
|
| 7,000 |
| ||||||||
Repayments on revolving commitment |
|
| — |
|
|
| (4,015 | ) | ||||||||
Borrowing on long-term debt |
|
| — |
|
|
| 15,000 |
| ||||||||
Repayments on long-term debt |
|
| — |
|
|
| (2,275 | ) | ||||||||
Net cash provided by financing activities |
|
| 9,466 |
|
|
| 15,710 |
| ||||||||
Net increase in cash |
|
| 14,190 |
|
|
| 1,883 |
| ||||||||
Cash and restricted cash at beginning of year |
|
| 52,648 |
|
|
| 24,188 |
| ||||||||
Cash and restricted cash at end of quarter |
| $ | 66,838 |
|
| $ | 26,071 |
| ||||||||
Issuance of ordinary shares under share-based compensation plans |
|
| 3,409 |
|
|
| — |
| ||||||||
Repurchase of ordinary shares |
|
| (5,000 | ) |
|
| — |
| ||||||||
Debt issuance and modification costs |
|
| (2,092 | ) |
|
| — |
| ||||||||
Borrowings on revolving credit facility |
|
| 7,162 |
|
|
| — |
| ||||||||
Repayments on term loan |
|
| (4,535 | ) |
|
| — |
| ||||||||
Net cash provided by (used in) financing activities |
|
| (1,056 | ) |
|
| 7,277 |
| ||||||||
Net decrease in cash |
|
| (5,508 | ) |
|
| (4,244 | ) | ||||||||
Cash at beginning of year |
|
| 69,304 |
|
|
| 52,648 |
| ||||||||
Cash at end of quarter |
| $ | 63,796 |
|
| $ | 48,404 |
| ||||||||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
| $ | 1,927 |
|
| $ | 1,512 |
|
| $ | 1,297 |
|
| $ | 1,409 |
|
Cash paid during the period for taxes |
| $ | 93 |
|
| $ | 259 |
|
| $ | 230 |
|
| $ | 14 |
|
Supplemental disclosures of non-cash activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures included in accounts payable |
| $ | 502 |
|
| $ | 224 |
|
| $ | 834 |
|
| $ | 1,585 |
|
See accompanying notes.
Notes to Consolidated Financial Statements (Unaudited)
(dollarsdollar figures in tables in thousands, except share and per share amounts and percentages)
Note 1 – Basis of Presentation
Basis of Presentation
These consolidated 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 financial figures presented in the notes to consolidated financial statements are in thousands, except share, per share, and percentage figures.
Year End
We use a 52 or 53 week fiscal year ending on the last Friday in December. The three months ended JuneMarch 30, 20172018 and June 24, 2016March 31, 2017 were both 13 weeks. The six months ended June 30, 2017 and June 24, 2016 were both 26 weeks. References to the secondfirst quarter of 20172018 and 20162017 relate to the three months ended JuneMarch 30, 2018 and March 31, 2017, and June 24, 2016, respectively. References to fiscal year 2018 relate to our fiscal year ending December 28, 2018.
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. The Company bases itsWe base our estimates and judgments on historical experience and on various other assumptions that it believeswe believe are reasonable under the circumstances. Actual results could differ from the estimates made by management. Significant estimates include the fair value of assets and liabilities acquired in acquisitions, estimated useful lives for long‑lived assets, allowance for doubtful accounts, inventory valuation, uncertain tax positions, fair value assigned to stock options granted, and impairment analysis for both definite‑lived intangible assets and goodwill.
CorrectionRevenue Recognition
We recognize revenue when control of promised goods or services is transferred to our customers, in an Immaterial Error
Duringamount that reflects the second quarter of 2017,consideration we corrected an error relatedexpect to translating the inventory balances at our Malaysia and Singapore subsidiaries at an incorrect foreign currency rate. The error arosebe entitled to in prior period financial statements beginning in periods prior to 2014 and through 2016. The correction resulted in a $1,752 increase in cost ofexchange for those goods or services. This amount is recorded as net sales and a corresponding decrease in gross profit in our consolidated statements of operationsoperations.
Transaction price – In most of our contracts, prices are generally determined by a customer-issued purchase order and remain fixed. Certain contracts contain variable consideration, including early-payment discounts and rebates. When a decreasecontract includes variable consideration, we evaluate the estimate of the variable consideration to inventoriesdetermine 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 related to shipping and handling are classified as net sales, while all costs incurred by us for shipping and handling are classified as cost of goods sold.
Performance obligations – Substantially all of our performance obligations pertain to promised goods (“products”), which are primarily comprised of gas and fluid delivery systems, weldments, and other components. Most of our contracts contain a single performance obligation. Product sales are recognized at a point-in-time, generally upon delivery, as such term is definied within the contract, as that is when control of the promised good has transferred. Products are covered by a standard assurance warranty, varying in length by 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 balances sheet duringbalance sheets in any of the second quarter of 2017. We evaluated the error on both a quantitative and qualitative basis and determined that the error was not material and did not affect the trend of net income or cash flows in previously issued financial statements. Additionally, we determined that correcting the error in the second quarter of 2017 is not expected to have a material impact to our consolidated financial statements for the fiscal year ended December 29, 2017.periods presented.
Accounting Pronouncements Recently IssuedAdopted
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards UpdateUpdated (“ASU”) No. 2014‑09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014‑09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014‑09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most currentnearly all existing revenue recognition guidance. In August 2015,Subsequent to the issuance of ASU No. 2014‑09, the FASB issued ASU No. 2015‑14,clarified the guidance through several ASUs. We adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, on December 30, 2017, the first day of fiscal year 2018, using the modified retrospective method. After assessing our contracts with our customers, we determined that there was not a significant change to the nature, timing, and extent of our revenues under the new standard. Accordingly, we did not make a cumulative-effect adjustment to retained earnings on December 30, 2017, as there was no adjustment to be made.
In August 2016, the FASB issued ASU 2016‑15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments. The amendment provides and clarifies guidance on the classification of certain cash receipts and cash payments in the statement of cash flows to eliminate diversity in practice. We adopted ASU 2016-15 on December 30, 2017, the first day of fiscal year 2018, which did not have a significant impact on our consolidated financial statements.
In May 2017, the FASB issued ASU 2017‑09, Compensation-Stock Compensation (Topic 606)718) – DeferralScope of the Effective DateModification Accounting (“ASU 2015‑14”), which defersprovides guidance about which changes to the effective dateterms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. We adopted ASU 2014‑2017‑09 for one year and permits early adoption in accordance with the original effective date of ASU 2014‑09.The standard is effective for the Company beginning inon December 30, 2017, the first quarterday of the fiscal year ending December 28, 2018. The Company is currently evaluating the2018, which did not have a significant impact of this accounting standard.on our consolidated financial statements.
Accounting Pronouncements Recently Issued
In February 2016, the FASB issued ASU No. 2016‑02, Leases (Topic 842) (“ASU 2016‑02”), which establishes a comprehensive lease standard for all industries. The standard requires lessees to recognize a right of use asset and a lease liability for virtually all leases, other than leases that meet the definition of short term leases. The standard is effective for the Companyus beginning in the first quarter of the fiscal year ending December 27, 2019. The Company isWe are currently evaluating the impact of this accounting standard.
In January 2017, the FASB issued ASU No. 2017‑04, Intangibles—Goodwill and Other (Topic 350) (“ASU 2017‑04”), which eliminates the requirement to perform Step 2 of the goodwill impairment test. Under ASU 2017‑04, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge, if any, for the amount a reporting unit’s carrying amount exceeds its fair value. The standard is effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. The Company does not expect this standard to have a significant impact on its financial statements.
Note 2 – Ajax‑United Patterns & Molds, Inc. AcquisitionAcquisitions
In April 2016, the CompanyTalon Innovations Corporation
On December 11, 2017, we completed the acquisition of Ajax‑United Patterns & Molds, Inc.Talon Innovations Corporation (“Ajax”Talon”), a manufacturerMinnesota-based leader in the design and manufacturing of complex plastic and metal productshigh precision machined parts used in leading edge semiconductor tools, for $137.0 million. Talon expanded our capacity and capabilities in the medical, biomedical,area of component manufacturing for gas and chemical delivery tools used in semiconductor data communicationmanufacturing and food processing equipment industries, for $17,594.other industrial applications.
The following table presents the preliminary purchase price allocation as of December 29, 2017 and March 30, 2018, as well as measurement period adjustments from December 30, 2016 to June 30, 2017.recorded during the one year measurement period. Measurement period adjustments are primarily relatedrelate to finalizationthe fair value of Talon’s opening balance accounts receivable, income taxes payable, and deferred taxes.
|
| Preliminary Allocation December 29, 2017 |
|
| Measurement Period Adjustment |
|
| Preliminary Allocation March 30, 2018 |
| |||
Cash acquired |
| $ | 5,586 |
|
| $ | — |
|
| $ | 5,586 |
|
Accounts receivable |
|
| 11,471 |
|
|
| 600 |
|
|
| 12,071 |
|
Inventories |
|
| 19,399 |
|
|
| — |
|
|
| 19,399 |
|
Prepaid expenses and other current assets |
|
| 182 |
|
|
| — |
|
|
| 182 |
|
Property and equipment |
|
| 16,655 |
|
|
| — |
|
|
| 16,655 |
|
Other noncurrent assets |
|
| 76 |
|
|
| — |
|
|
| 76 |
|
Intangible assets |
|
| 38,000 |
|
|
| — |
|
|
| 38,000 |
|
Goodwill |
|
| 74,594 |
|
|
| (1,375 | ) |
|
| 73,219 |
|
Accounts payable |
|
| (4,706 | ) |
|
| — |
|
|
| (4,706 | ) |
Accrued liabilities |
|
| (2,767 | ) |
|
| — |
|
|
| (2,767 | ) |
Other current liabilities |
|
| (1,838 | ) |
|
| 972 |
|
|
| (866 | ) |
Deferred tax liabilities |
|
| (19,652 | ) |
|
| (197 | ) |
|
| (19,849 | ) |
Total acquisition consideration |
| $ | 137,000 |
|
| $ | — |
|
| $ | 137,000 |
|
On July 27, 2017, we completed the valuationacquisition of deferred tax liabilitiesCal‑Weld, Inc. (“Cal‑Weld”), a California-based leader in the design and net identifiable assetsfabrication of precision, high purity industrial components, subsystems, and liabilities:systems, for $56.9 million. Cal‑Weld expanded our capacity and capabilities in the area of component manufacturing for Gas Delivery tools used in semiconductor manufacturing.
The following table presents the preliminary purchase price allocation as of December 29, 2017 and March 30, 2018, as well as measurement period adjustments recorded during the one year measurement period. Measurement period adjustments primarily relate to the fair value of Cal‑Weld’s opening balance inventory.
|
| Preliminary Allocation December 30, 2016 |
|
| Measurement Period Adjustment |
|
| Final Allocation June 30, 2017 |
|
| Preliminary Allocation December 29, 2017 |
|
| Measurement Period Adjustment |
|
| Preliminary Allocation March 30, 2018 |
| ||||||
Cash acquired |
| $ | 187 |
|
| $ | - |
|
| $ | 187 |
|
| $ | 7,337 |
|
| $ | — |
|
| $ | 7,337 |
|
Accounts receivable, net |
|
| 1,250 |
|
|
| - |
|
|
| 1,250 |
| ||||||||||||
Accounts receivable |
|
| 10,318 |
|
|
| — |
|
|
| 10,318 |
| ||||||||||||
Inventories |
|
| 3,236 |
|
|
| - |
|
|
| 3,236 |
|
|
| 20,836 |
|
|
| (388 | ) |
|
| 20,448 |
|
Prepaid expenses and other current assets |
|
| 77 |
|
|
| 8 |
|
|
| 85 |
|
|
| 400 |
|
|
| — |
|
|
| 400 |
|
Property and equipment, net |
|
| 1,545 |
|
|
| (78 | ) |
|
| 1,467 |
| ||||||||||||
Property and equipment |
|
| 1,639 |
|
|
| — |
|
|
| 1,639 |
| ||||||||||||
Other noncurrent assets |
|
| 2,948 |
|
|
| - |
|
|
| 2,948 |
|
|
| 587 |
|
|
| — |
|
|
| 587 |
|
Intangible assets, net |
|
| 8,030 |
|
|
| - |
|
|
| 8,030 |
| ||||||||||||
Intangible assets |
|
| 12,140 |
|
|
| — |
|
|
| 12,140 |
| ||||||||||||
Goodwill |
|
| 7,078 |
|
|
| (22 | ) |
|
| 7,056 |
|
|
| 17,734 |
|
|
| 388 |
|
|
| 18,122 |
|
Accounts payable and other accrued liabilities |
|
| (4,486 | ) |
|
| 9 |
|
|
| (4,477 | ) | ||||||||||||
Accounts payable |
|
| (5,991 | ) |
|
| — |
|
|
| (5,991 | ) | ||||||||||||
Accrued liabilities |
|
| (1,937 | ) |
|
| — |
|
|
| (1,937 | ) | ||||||||||||
Other non-current liabilities |
|
| (908 | ) |
|
| — |
|
|
| (908 | ) | ||||||||||||
Deferred tax liabilities |
|
| (2,271 | ) |
|
| 83 |
|
|
| (2,188 | ) |
|
| (5,276 | ) |
|
| — |
|
|
| (5,276 | ) |
Total acquisition consideration |
| $ | 17,594 |
|
| $ | - |
|
| $ | 17,594 |
|
| $ | 56,879 |
|
| $ | — |
|
| $ | 56,879 |
|
Note 3 – Inventories
Inventories consist of the following:
|
| June 30, 2017 |
|
| December 30, 2016 |
| ||
Raw materials |
| $ | 73,864 |
|
| $ | 46,889 |
|
Work in process |
|
| 24,767 |
|
|
| 22,649 |
|
Finished goods |
|
| 6,910 |
|
|
| 9,423 |
|
Excess and obsolete adjustment |
|
| (8,546 | ) |
|
| (8,080 | ) |
|
| $ | 96,995 |
|
| $ | 70,881 |
|
|
| March 30, 2018 |
|
| December 29, 2017 |
| ||
Raw materials |
| $ | 101,353 |
|
| $ | 91,109 |
|
Work in process |
|
| 45,822 |
|
|
| 42,186 |
|
Finished goods |
|
| 24,050 |
|
|
| 27,268 |
|
Excess and obsolete adjustment |
|
| (6,602 | ) |
|
| (6,022 | ) |
Total inventories, net |
| $ | 164,623 |
|
| $ | 154,541 |
|
Note 4 – Property and Equipment
Property and equipment consist of the following:
|
| June 30, 2017 |
|
| December 30, 2016 |
|
| March 30, 2018 |
|
| December 29, 2017 |
| ||||
Machinery |
| $ | 6,408 |
|
| $ | 5,243 |
|
| $ | 25,834 |
|
| $ | 23,464 |
|
Leasehold improvements |
|
| 14,326 |
|
|
| 11,276 |
|
|
| 14,778 |
|
|
| 15,329 |
|
Computer software, hardware and equipment |
|
| 3,985 |
|
|
| 2,848 |
|
|
| 4,581 |
|
|
| 4,551 |
|
Office furniture, fixtures and equipment |
|
| 255 |
|
|
| 220 |
|
|
| 906 |
|
|
| 868 |
|
Vehicles |
|
| 9 |
|
|
| 10 |
|
|
| 51 |
|
|
| 51 |
|
Construction-in-process |
|
| 1,202 |
|
|
| 2,069 |
|
|
| 4,624 |
|
|
| 2,771 |
|
|
|
| 26,185 |
|
|
| 21,666 |
|
|
| 50,774 |
|
|
| 47,034 |
|
Less accumulated depreciation |
|
| (11,290 | ) |
|
| (9,648 | ) |
|
| (14,488 | ) |
|
| (12,654 | ) |
Total property and equipment |
| $ | 14,895 |
|
| $ | 12,018 |
| ||||||||
Total property and equipment, net |
| $ | 36,286 |
|
| $ | 34,380 |
|
Depreciation expense was $897, $676, $1,587,$1.9 million and $1,215$0.7 million for the secondfirst quarter of 2018 and 2017, and 2016 and the six months ended June 30, 2017 and June 24, 2016, respectively.
Note 5 – Intangible Assets and Goodwill
Definite‑lived intangible assets consist of the following:
|
| June 30, 2017 |
|
| March 30, 2018 | |||||||||||||||||||||||||||||
|
| Gross value |
|
| Accumulated amortization |
|
| Accumulated impairment charges |
|
| Carrying amount |
|
| Gross value |
|
| Accumulated amortization |
|
| Accumulated impairment charges |
|
| Carrying amount |
|
| Weighted average useful life | ||||||||
Trademarks |
| $ | 9,690 |
|
| $ | (5,327 | ) |
| $ | — |
|
| $ | 4,363 |
|
| $ | 9,690 |
|
| $ | (6,056 | ) |
| $ | — |
|
| $ | 3,634 |
|
| 10.0 years |
Customer relationships |
|
| 50,557 |
|
|
| (18,432 | ) |
|
| (11,076 | ) |
|
| 21,049 |
|
|
| 81,427 |
|
|
| (22,826 | ) |
|
| — |
|
|
| 58,601 |
|
| 7.8 years |
Developed technology |
|
| 28,100 |
|
|
| (16,809 | ) |
|
| (8,155 | ) |
|
| 3,136 |
|
|
| 22,990 |
|
|
| (15,699 | ) |
|
| — |
|
|
| 7,291 |
|
| 7.7 years |
Total intangible assets |
| $ | 88,347 |
|
| $ | (40,568 | ) |
| $ | (19,231 | ) |
| $ | 28,548 |
|
| $ | 114,107 |
|
| $ | (44,581 | ) |
| $ | — |
|
| $ | 69,526 |
|
|
|
|
| December 30, 2016 |
|
| December 29, 2017 | |||||||||||||||||||||||||||||
|
| Gross value |
|
| Accumulated amortization |
|
| Accumulated impairment charges |
|
| Carrying amount |
|
| Gross value |
|
| Accumulated amortization |
|
| Accumulated impairment charges |
|
| Carrying amount |
|
| Weighted average useful life | ||||||||
Trademarks |
| $ | 9,690 |
|
| $ | (4,845 | ) |
| $ | — |
|
| $ | 4,845 |
|
| $ | 9,690 |
|
| $ | (5,814 | ) |
| $ | — |
|
| $ | 3,876 |
|
| 10.0 years |
Customer relationships |
|
| 50,557 |
|
|
| (17,150 | ) |
|
| (11,076 | ) |
|
| 22,331 |
|
|
| 81,427 |
|
|
| (20,060 | ) |
|
| — |
|
|
| 61,367 |
|
| 7.8 years |
Developed technology |
|
| 28,100 |
|
|
| (14,975 | ) |
|
| (8,155 | ) |
|
| 4,970 |
|
|
| 22,990 |
|
|
| (14,938 | ) |
|
| — |
|
|
| 8,052 |
|
| 7.7 years |
Backlog |
|
| 30 |
|
|
| (30 | ) |
|
| — |
|
|
| — |
|
|
| 660 |
|
|
| (550 | ) |
|
| — |
|
|
| 110 |
|
| 0.5 years |
Total intangible assets |
| $ | 88,377 |
|
| $ | (37,000 | ) |
| $ | (19,231 | ) |
| $ | 32,146 |
|
| $ | 114,767 |
|
| $ | (41,362 | ) |
| $ | — |
|
| $ | 73,405 |
|
|
|
Amortization expense was $1,803, $1,803, $3,598,$3.9 million and $3,406$1.8 million for the secondfirst quarter of 20172018 and 2016 and2017 the six months ended June 30, 2017 and June 24, 2016,, respectively.
DuringThe following table presents changes to goodwill during the six months ended June 30, 2017, goodwill decreased by $22 due to a measurement period adjustment associated with our acquisitionfirst quarter of Ajax.2018:
|
| Goodwill |
| |
Balance at December 29, 2017 |
| $ | 169,399 |
|
Acquisitions |
|
| (987 | ) |
Impairment |
|
| — |
|
Balance at March 30, 2018 |
| $ | 168,412 |
|
Note 6 – Commitments and Contingencies
Operating Leases
The Company leasesWe lease offices under various operating leases expiring through 2024. The Company isWe are responsible for utilities and itsour proportionate share of operating expenses under the facilities’ leases. The Company recognizes escalatingEscalating lease payments are recognized on a straight‑line basis over the lease term. The total obligation at JuneMarch 30, 2017 is $7,249.2018 was $22.2 million.
Litigation
The Company isWe are periodically involved in legal actions and claims that arise as a result of events that occur in the normal course of operations. The ultimate resolution of these actions is not expected to have a material adverse effect on the Company’sour financial position or results of operations.
At June 30, 2017, the Company has purchase orders outstanding for raw materials and component parts totaling $76,135.
Note 7 – Income Taxes
Information on the Company’s income taxesIncome tax information for the periods reported isare as follows:
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| March 30, 2018 |
|
| March 31, 2017 |
| ||||||
Income tax expense from continuing operations |
| $ | 473 |
|
| $ | 225 |
|
| $ | 998 |
|
| $ | 461 |
|
| $ | 1,091 |
|
| $ | 525 |
|
Income from continuing operations before income taxes |
| $ | 10,943 |
|
| $ | 3,500 |
|
| $ | 24,420 |
|
| $ | 5,568 |
|
| $ | 17,812 |
|
| $ | 13,477 |
|
Effective income tax rate |
|
| 4.3 | % |
|
| 6.4 | % |
|
| 4.1 | % |
|
| 8.3 | % |
|
| 6.1 | % |
|
| 3.9 | % |
The Company’s
Our effective tax rate for the secondfirst quarter of 20172018 differs from the statutory rate due to taxes on foreign income that differ from the U.S. tax rate and 2016accrued withholding taxes. Our effective tax rate for the first quarter of 2017 differs from the statutory rate due to a full valuation allowance provided against itsour U.S. net deferred tax assets, taxes on foreign income at rates that differ from the U.S. tax rate, and accrued withholding taxes.
As we doof March 30, 2018, our accounting for the tax effects of the Tax Cuts and Jobs Act is not believe that it is more likely than not that we will realize a benefit from our U.S. net deferred tax assets, including our U.S. net operating losses, we continuecomplete, however, during the first quarter of 2018, there were no adjustments made to provide a full valuation allowance against essentially all of those assets, therefore, we do not incur significant U.S. income tax expense or benefit. We have notthe provisional amounts recorded a valuation allowance against our other foreign net deferred tax assets as we believe that it is more likely than not that we will realize a benefit from those assets.at December 29, 2017.
The ending balance for the unrecognized tax benefits for uncertain tax positions was approximately $659$2.0 million at JuneMarch 30, 2017.2018. The related interest and penalties were $185.$0.1 million and $0.4 million, respectively. The uncertain tax positions that are reasonably possible to decrease in the next twelve months are insignificant.
As of JuneMarch 30, 2017, the Company is2018, we are not currently under examination by tax authorities.
Note 8 – Employee Benefit Programs
401(k) Plan
The Company sponsorsWe sponsor a 401(k) plan available to employees of itsour U.S.‑based subsidiaries. Participants may make salary deferral contributions not to exceed 50% of a participant’s compensation in a plan year or the maximum amount otherwise allowed by law. Eligible employees receive a discretionary matching contribution equal to 50% of each participant’s deferral, up to an annual maximum of two thousand five hundred dollars. Matching contributions were $210, $85, $338,$0.5 million and $218$0.1 million for the secondfirst quarter of 20172018 and 2016 and the six months ended June 30, 2017, and June 24, 2016, respectively.
Medical Insurance
The Company sponsorsWe sponsor a self‑insured group medical insurance plan for itsour U.S. employees and their dependents. The self‑insured plan is designed to provide a specified level of coverage, with stop‑loss coverage provided by a commercial insurer, in order to limit the Company’sour exposure. Expense incurred related to this plan was $723, $524, $1,416,$2.5 million and $1,209$0.7 million for the secondfirst quarter of 20172018 and 2016 and the six months ended June 30, 2017, and June 24, 2016, respectively.
Note 9 – Credit FacilitiesLong-Term Debt
Long‑term debt consists of the following:
|
| June 30, 2017 |
|
| December 30, 2016 |
| ||
Term loan facility |
| $ | 39,830 |
|
| $ | 39,830 |
|
Less unamortized debt issuance costs |
|
| (1,622 | ) |
|
| (1,886 | ) |
Total long-term debt |
|
| 38,208 |
|
|
| 37,944 |
|
Less current portion |
|
| — |
|
|
| — |
|
Total long-term debt, net of current portion |
| $ | 38,208 |
|
| $ | 37,944 |
|
|
| March 30, 2018 |
|
| December 29, 2017 |
| ||
Term loan |
| $ | 175,000 |
|
| $ | 179,535 |
|
Revolving credit facility |
|
| 17,162 |
|
|
| 10,000 |
|
Total principal amount of long-term debt |
|
| 192,162 |
|
|
| 189,535 |
|
Less unamortized debt issuance costs |
|
| (4,557 | ) |
|
| (2,798 | ) |
Total long-term debt, net |
|
| 187,605 |
|
|
| 186,737 |
|
Less current portion |
|
| (6,563 | ) |
|
| (6,490 | ) |
Total long-term debt, less current portion, net |
| $ | 181,042 |
|
| $ | 180,247 |
|
On August 11, 2015, the CompanyFebruary 15, 2018, we amended and its subsidiaries entered intorestated our credit agreement (the “amendment”), which replaced our existing credit facilities with a new $55,000$175.0 million term loan facility and $20,000a revolving credit facility (collectively,(the “revolver”) allowing for borrowings up to $125.0 million. Additionally, the “2015 Credit Facility”)amendment reduced our borrowing rate, depending on our leverage ratio, and extended the maturity date. We incurred debt issuance costs of $2.1 million in connection with the amendment. The amendment did not meet the definition of an extinguishment and was accounted for as a syndicate of lenders and repaid all outstanding indebtedness under the prior $50,000 term loan facility and $25,000 revolving credit facility. In April 2016, the Company amended the 2015 Credit Facility to increase the term loan facility by $15,000. The 2015 Credit Facility also includes a letter of credit subfacility under the revolving credit facility.debt modification.
Interest is charged at either the Base Rate or the Eurodollar rate (as such terms are defined in the agreement governing the 2015 Credit Facility)credit agreement) at theour option, of the Company, plus an applicable margin. The Base Rate is equal to the higher of i) the Prime Rate, ii) the Federal Funds Effective rateRate plus 0.5%, or iii) the Eurodollar Rate plus 1.00%. The Eurodollar rate is equal to LIBOR. The applicable margin on Base Rate and Eurodollar Rate loans is 3.00%0.75‑1.50% and 4.00%,1.75‑2.50% per annum, respectively. Interest paymentsrespectively, depending on our leverage ratio. We are also charged a commitment fee of 0.20%-0.35% on the outstanding principal balanceunused portion of our revolver. Base Rate interest payments and commitment fees are due quarterly if loans are made under the Base Rate. Interestquarterly. Eurodollar interest payments are due on the last day of the applicable interest period under Eurodollar Rate loans. As of Juneperiod. At March 30, 2017,2018, the term loan facilityand revolver bore interest at the Eurodollar rate option at 5.15%.of 4.08% and 4.16%, respectively.
Term loan principal payments of $2.2 million are due on a quarterly basis, commencing June 30, 2018. The term loan and revolver mature on February 15, 2023.
Note 10 – Related Party TransactionsShareholders’ Equity
The Company received advisory services from Francisco Partners Management, L.P. (“Francisco Partners”) an entity affiliated withShare Repurchase Program
In February 2018, our board of directors authorized a share repurchase program up to $50.0 million under which we may repurchase our ordinary shares in the Company’s principal shareholders but in which such shareholders hold no interest,open market or through our December 2016 IPO, at which pointprivately negotiated transactions, depending on market conditions and other factors. Ordinary shares repurchased are recorded as treasury shares using the agreement was terminated. Under the agreement, the Company paid Francisco Partners an annual advisory fee equal to $1,500 per year. Francisco Partners has waived payment of advisory fees for all periods presented.
The Company also received consulting services from Francisco Partners Consulting, LLC (“FPC”), an entity that provides consulting services to the private equity funds management by Francisco Partners and their portfolio companiescost method on a dedicated basis, through our December 2016 IPO,first-in, first-out basis.
During the first quarter of 2018, we repurchased 195,750 ordinary shares for a total cost of $5.0 million at which pointan average price of $25.51 per share. At March 30, 2018, $45.0 million remained available to repurchase ordinary shares under the agreement was terminated. FPC is not an affiliate of the Company or of Francisco Partners, and none of the Company’s principal shareholders hold an in interest in FPC. In the six months ended June 30, 2017, the Company received from FPC a refund of previously paid consulting fees of $281. In the six months ended June 24, 2016, the Company paid $262 to FPC for consulting services.
The Company purchases certain parts from Ajax Foresight Global Manufacturing Sdn. Bhd. (“AFGM”), an investment acquired in conjunction with the acquisition of Ajax. Total purchases from AFGM were $387 and $0 in the six months ended June 30, 2017 and June 24, 2016, respectively. Outstanding accounts payable to AFGM totaled $344 at December 30, 2016. During February 2017, the Company sold its investment in AFGM, and therefore no related party relationship exists on a go‑forward basis.repurchase program.
Note 11 – Share‑Based Compensation
The Company has two share‑based compensation plans, the Ichor Holdings Ltd. 2012 Equity Incentive Plan (the “2012 Plan”) and the 2016 Omnibus Incentive Plan (the “2016 Plan”), which provide provides for grants of share‑based awards to employees, directors, and consultants. Awards may be in the form of options, tandem and non‑tandem stock appreciation rights, restricted shares,share awards or restricted stockshare units (“restricted shares”), performance awards, and other share‑based awards. Awards generally vest over four years, 25% on the first anniversary and quarterly thereafter.
Share‑based compensation expense across all plans for stock options, restricted shares, and employee share purchase rights was $3.8 million and $0.3 million for the first quarter of 2018 and 2017, respectively.
On January 18, 2018, in connection with the resignation of our former Chief Financial Officer, certain separation benefits became effective, which includes a vesting acceleration of all outstanding and unvested stock options and restricted shares. Consequently, 88,445 stock options and 39,175 restricted shares across all plansvested on January 18, 2018. This was $569, $555, $913, and $972accounted for the second quarter of 2017 and 2016 and the six months ended June 30, 2017 and June 24, 2016, respectively.as an equity award modification under ASC Topic 718, resulting in $2.9 million in share-based compensation expense.
Stock Options
The following table summarizes the Company’s stock option activity during the six months ended June 30, 2017:activity:
|
| Number of Stock Options |
|
|
|
|
|
|
|
|
|
|
|
| Number of Stock Options |
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Time vesting |
|
| Performance vesting |
|
| Weighted average exercise price per share |
|
| Weighted average remaining contractual term |
| Aggregate intrinsic value (in thousands) |
|
| Time vesting |
|
| Performance vesting |
|
| Weighted average exercise price per share |
|
| Weighted average remaining contractual term |
| Aggregate intrinsic value (in thousands) |
| ||||||||
Outstanding, December 30, 2016 |
|
| 1,948,307 |
|
|
| 215,908 |
|
| $ | 8.87 |
|
|
|
|
|
|
| ||||||||||||||||||
Outstanding, December 29, 2017 |
|
| 1,452,825 |
|
|
| 215,908 |
|
| $ | 12.87 |
|
|
|
|
|
|
| ||||||||||||||||||
Granted |
|
| 402,700 |
|
|
| — |
|
| $ | 18.53 |
|
|
|
|
|
|
|
|
| 711,100 |
|
|
| — |
|
| $ | 24.95 |
|
|
|
|
|
|
|
Exercised |
|
| (264,697 | ) |
|
| — |
|
| $ | 8.27 |
|
|
|
|
|
|
|
|
| (325,969 | ) |
|
| — |
|
| $ | 9.91 |
|
|
|
|
|
|
|
Forfeited |
|
| — |
|
|
| — |
|
| $ | — |
|
|
|
|
|
|
|
|
| — |
|
|
| — |
|
| $ | — |
|
|
|
|
|
|
|
Expired |
|
| — |
|
|
| — |
|
| $ | — |
|
|
|
|
|
|
|
|
| — |
|
|
| — |
|
| $ | — |
|
|
|
|
|
|
|
Outstanding, June 30, 2017 |
|
| 2,086,310 |
|
|
| 215,908 |
|
| $ | 10.62 |
|
| 3.8 years |
| $ | 22,078 |
| ||||||||||||||||||
Exercisable, June 30, 2017 |
|
| 1,431,979 |
|
|
| 215,908 |
|
| $ | 8.95 |
|
| 2.8 years |
| $ | 18,480 |
| ||||||||||||||||||
Outstanding, March 30, 2018 |
|
| 1,837,956 |
|
|
| 215,908 |
|
| $ | 17.52 |
|
| 5.1 years |
| $ | 14,537 |
| ||||||||||||||||||
Exercisable, March 30, 2018 |
|
| 464,356 |
|
|
| 215,908 |
|
| $ | 9.50 |
|
| 2.5 years |
| $ | 10,006 |
|
Restricted Shares
The following table summarizes the Company’s restricted share activity duringactivity:
|
| Number of Restricted Ordinary Shares |
|
|
|
|
| |
|
| Time vesting |
|
| Weighted average grant date fair value |
| ||
Unvested, December 29, 2017 |
|
| 153,281 |
|
| $ | 17.53 |
|
Granted |
|
| 92,100 |
|
| $ | 24.95 |
|
Vested |
|
| (50,423 | ) |
| $ | 12.16 |
|
Forfeited |
|
| — |
|
| $ | — |
|
Unvested, March 30, 2018 |
|
| 194,958 |
|
| $ | 22.43 |
|
The 2017 Employee Stock Purchase Plan (the “2017 ESPP”) grants employees the six months endedability to designate a portion of their base-pay to purchase ordinary shares at a price equal to 85% of the fair market value of our ordinary shares on the first or last day of each 6 month purchase period. Purchase periods begin on January 1 or July 1 and end on June 30 2017:or December 31, or the next business day if such date is not a business day. Shares are purchased on the last day of the purchase period.
|
| Number of Restricted Ordinary Shares |
|
|
|
|
| |
|
| Time vesting |
|
| Weighted average grant date fair value |
| ||
Unvested, December 30, 2016 |
|
| 103,055 |
|
| $ | 8.39 |
|
Granted |
|
| 70,100 |
|
| $ | 17.14 |
|
Vested |
|
| (52,443 | ) |
| $ | 8.48 |
|
Forfeited |
|
| — |
|
| $ | — |
|
Unvested, June 30, 2017 |
|
| 120,712 |
|
| $ | 13.43 |
|
During the first quarter of 2018, 10,781 ordinary shares were purchased under the 2017 ESPP. As of March 30, 2018, 2.5 million ordinary shares remain available for purchase under the 2017 ESPP.
Note 12 – Segment Information
The Company’sOur Chief Operating Decision Maker, the Chief Executive Officer, reviews the Company’sour results of operations on a consolidated level and executive staff is structured by function rather than by product category. Therefore, the Company operateswe operate in one operating segment. Key resources, decisions, and assessment of performance are also analyzed on a company‑wide level.
The Company’s foreignForeign operations are conducted primarily through itsour wholly owned subsidiaries in Singapore and Malaysia. The Company’sOur principal markets include North America, Asia and, to a lesser degree, Europe. Sales by geographic area represent sales to unaffiliated customers.
All information on sales by geographic area is based upon the location to which the products were shipped. The following table sets forth sales by geographic area (including sales from discontinued operations):area:
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| March 30, 2018 |
|
| March 31, 2017 |
| ||||||
United States of America |
| $ | 88,544 |
|
| $ | 70,292 |
|
| $ | 166,639 |
|
| $ | 120,133 |
|
| $ | 162,240 |
|
| $ | 78,095 |
|
Singapore |
|
| 62,584 |
|
|
| 40,247 |
|
|
| 122,524 |
|
|
| 63,493 |
|
|
| 73,736 |
|
|
| 59,940 |
|
Europe |
|
| 5,977 |
|
|
| 2,783 |
|
|
| 12,376 |
|
|
| 7,908 |
|
|
| 12,836 |
|
|
| 6,399 |
|
Other |
|
| 2,628 |
|
|
| 1,698 |
|
|
| 6,898 |
|
|
| 3,550 |
|
|
| 9,217 |
|
|
| 4,270 |
|
Total net sales |
| $ | 159,733 |
|
| $ | 115,020 |
|
| $ | 308,437 |
|
| $ | 195,084 |
|
| $ | 258,029 |
|
| $ | 148,704 |
|
Earnings per share (“EPS”) was presented in conformity with the two‑class method for the second quarter of 2016 and six months ended June 24, 2016, required for participating securities, as the Company had two classes of stock outstanding until its December 2016 IPO. EPS was not presented in conformity with the two‑class method for the second quarter of 2017 and six months ended June 30, 2017, as the Company had only one class of stock outstanding for that period.
The following table sets forth the computation of the Company’s basic and diluted net income (loss)earnings per share attributable to ordinary shareholders and a reconciliation of the numerator and denominator used in the calculation:
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| March 30, 2018 |
|
| March 31, 2017 |
| ||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations |
| $ | 10,470 |
|
| $ | 3,275 |
|
| $ | 23,422 |
|
| $ | 5,107 |
|
| $ | 16,721 |
|
| $ | 12,952 |
|
Undistributed earnings attributed to preferred shareholders |
|
| — |
|
|
| (3,259 | ) |
|
| — |
|
|
| (5,085 | ) | ||||||||
Net income from continuing operations, attributable to ordinary shareholders |
| $ | 10,470 |
|
| $ | 16 |
|
| $ | 23,422 |
|
| $ | 22 |
| ||||||||
Net loss from discontinued operations, attributable to ordinary shareholders |
| $ | (610 | ) |
| $ | (2,307 | ) |
| $ | (722 | ) |
| $ | (4,032 | ) | ||||||||
Net loss from discontinued operations |
| $ | — |
|
| $ | (112 | ) | ||||||||||||||||
Net income |
| $ | 9,860 |
|
| $ | 968 |
|
| $ | 22,700 |
|
| $ | 1,075 |
|
| $ | 16,721 |
|
| $ | 12,840 |
|
Undistributed earnings attributed to preferred shareholders |
|
| — |
|
|
| (963 | ) |
|
| — |
|
|
| (1,070 | ) | ||||||||
Net income, attributable to ordinary shareholders |
| $ | 9,860 |
|
| $ | 5 |
|
| $ | 22,700 |
|
| $ | 5 |
| ||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares outstanding |
|
| 24,848,365 |
|
|
| 85,589 |
|
|
| 24,751,390 |
|
|
| 75,631 |
|
|
| 26,030,298 |
|
|
| 24,654,415 |
|
Dilutive effect of stock options |
|
| 1,162,889 |
|
|
| 162,820 |
|
|
| 1,067,393 |
|
|
| 157,570 |
|
|
| 658,223 |
|
|
| 935,200 |
|
Dilutive effect of restricted shares |
|
| 52,273 |
|
|
| 29,145 |
|
|
| 49,620 |
|
|
| 51,865 |
|
|
| 45,271 |
|
|
| 50,474 |
|
Weighted average number of shares used in diluted per share calculation for net income from continuing operations |
|
| 26,063,527 |
|
|
| 277,554 |
|
|
| 25,868,403 |
|
|
| 285,066 |
| ||||||||
Dilutive effect of employee share purchase plan |
|
| 918 |
|
|
| — |
| ||||||||||||||||
Weighted average number of shares used in diluted per share calculation for net income and net income from continuing operations |
|
| 26,734,710 |
|
|
| 25,640,089 |
| ||||||||||||||||
Weighted average ordinary shares outstanding |
|
| 24,848,365 |
|
|
| 85,589 |
|
|
| 24,751,390 |
|
|
| 75,631 |
|
|
| 26,030,298 |
|
|
| 24,654,415 |
|
Dilutive effect of stock options |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Dilutive effect of restricted shares |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Dilutive effect of employee share purchase plan |
|
| — |
|
|
| — |
| ||||||||||||||||
Weighted average number of shares used in diluted per share calculation for net loss from discontinued operations |
|
| 24,848,365 |
|
|
| 85,589 |
|
|
| 24,751,390 |
|
|
| 75,631 |
|
|
| 26,030,298 |
|
|
| 24,654,415 |
|
Weighted average ordinary shares outstanding |
|
| 24,848,365 |
|
|
| 85,589 |
|
|
| 24,751,390 |
|
|
| 75,631 |
| ||||||||
Dilutive effect of stock options |
|
| 1,162,889 |
|
|
| 162,820 |
|
|
| 1,067,393 |
|
|
| 157,570 |
| ||||||||
Dilutive effect of restricted shares |
|
| 52,273 |
|
|
| 29,145 |
|
|
| 49,620 |
|
|
| 51,865 |
| ||||||||
Weighted average number of shares used in diluted per share calculation for net income |
|
| 26,063,527 |
|
|
| 277,554 |
|
|
| 25,868,403 |
|
|
| 285,066 |
| ||||||||
Net income (loss) per share attributable to ordinary shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Earnings per share: |
|
|
|
|
|
|
|
| ||||||||||||||||
Net income from continuing operations: |
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | 0.42 |
|
| $ | 0.19 |
|
| $ | 0.95 |
|
| $ | 0.29 |
|
| $ | 0.64 |
|
| $ | 0.53 |
|
Diluted |
| $ | 0.40 |
|
| $ | 0.06 |
|
| $ | 0.91 |
|
| $ | 0.08 |
|
| $ | 0.63 |
|
| $ | 0.51 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net loss from discontinued operations: |
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | (0.02 | ) |
| $ | (26.95 | ) |
| $ | (0.03 | ) |
| $ | (53.31 | ) |
| $ | — |
|
| $ | — |
|
Diluted |
| $ | (0.02 | ) |
| $ | (26.95 | ) |
| $ | (0.03 | ) |
| $ | (53.31 | ) |
| $ | — |
|
| $ | — |
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net income: |
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | 0.40 |
|
| $ | 0.06 |
|
| $ | 0.92 |
|
| $ | 0.07 |
|
| $ | 0.64 |
|
| $ | 0.52 |
|
Diluted |
| $ | 0.38 |
|
| $ | 0.02 |
|
| $ | 0.88 |
|
| $ | 0.02 |
|
| $ | 0.63 |
|
| $ | 0.50 |
|
An aggregated total of 105,471, 248,218, 192,558,346,622 and 242,503zero potential ordinary shares have been excluded from the computation of diluted net income (loss) per share attributable to ordinary shareholdersand diluted net income from continuing operations per share for the secondfirst quarter of 20172018 and 2016 and the six months ended June 30, 2017, and June 24, 2016, respectively, because including them would have been antidilutive.
Note 14 – Discontinued Operations
In January 2016, we made the decision to shut down our Kingston, New York facility as this location consumed a significant amount of resources while contributing very little income. We completed the shutdown of the operations of the New York facility in May 2016 through abandonment as a buyer for the facility and operation was not found. The Company continues to incur expenses related to the lease for this facility, which expires February 2018.
In the second quarter of 2017, we accrued for remaining costs to occupy the facility until thethrough its lease expiresexpiration in February 2018. Our initial restructuring accrual recorded inThe discontinued operation was deemed to be fully disposed of at December 29, 2017. Accordingly, there was no activity associated with the seconddiscontinued operation during the first quarter of 2016 assumed the ability to sublease the facility, which to‑date we have not been able to do. We do not anticipate any sublease of the facility at this time.2018.
The following table represents the carrying amounts of the major classes of assets and liabilities of the Kingston, New York facility:our discontinued operation:
|
| June 30, 2017 |
|
| December 30, 2016 |
|
| December 29, 2017 |
| |||
Assets | Assets |
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
| $ | 35 |
|
| $ | 99 |
|
| $ | 3 |
|
Total current assets |
|
| 35 |
|
|
| 99 |
|
|
| 3 |
|
Total assets |
| $ | 35 |
|
| $ | 99 |
|
| $ | 3 |
|
Liabilities | Liabilities |
|
|
|
|
|
|
| Liabilities |
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 110 |
|
| $ | 152 |
|
| $ | 136 |
|
Accrued liabilities |
|
| 632 |
|
|
| 360 |
|
|
| 255 |
|
Other current liabilities |
|
| 34 |
|
|
| 52 |
|
|
| 9 |
|
Total current liabilities |
|
| 776 |
|
|
| 564 |
|
|
| 400 |
|
Deferred tax liabilities |
|
| 30 |
|
|
| 30 |
| ||||
Other long-term liabilities |
|
| — |
|
|
| 9 |
| ||||
Total liabilities |
| $ | 806 |
|
| $ | 603 |
|
| $ | 400 |
|
The following table represents results of our discontinued operation:
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
| |||||||||||
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| March 31, 2017 |
| |||||
Net sales |
| $ | — |
|
| $ | 19,655 |
|
| $ | — |
|
| $ | 26,432 |
| ||||
Cost of sales |
|
| — |
|
|
| 20,670 |
|
|
| — |
|
|
| 27,928 |
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| — |
|
|
| 74 |
|
|
| — |
|
|
| 267 |
| ||||
Selling, general, and administrative |
|
| 610 |
|
|
| 1,216 |
|
|
| 721 |
|
|
| 2,266 |
|
| $ | 111 |
|
Amortization of intangible assets |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||
Total operating expenses |
|
| 610 |
|
|
| 1,290 |
|
|
| 721 |
|
|
| 2,533 |
|
|
| 111 |
|
Operating loss |
|
| (610 | ) |
|
| (2,305 | ) |
|
| (721 | ) |
|
| (4,029 | ) |
|
| (111 | ) |
Interest income, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||
Other expense, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||
Loss from discontinued operations before income taxes |
|
| (610 | ) |
|
| (2,305 | ) |
|
| (721 | ) |
|
| (4,029 | ) |
|
| (111 | ) |
Income tax expense |
|
| — |
|
|
| 2 |
|
|
| 1 |
|
|
| 3 |
|
|
| 1 |
|
Loss from discontinued operations |
| $ | (610 | ) |
| $ | (2,307 | ) |
| $ | (722 | ) |
| $ | (4,032 | ) |
| $ | (112 | ) |
Note 15 – Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. The Company recognizes in the consolidated financial statements the effectsAcquisition of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing the financial statements. The Company's consolidated financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date and before financial statements are issued. In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through August 11, 2017, the date the consolidated financial statements were issued.IAN Engineering
On July 27, 2017,April 13, 2018, our subsidiary, Ichor Holdings, LLC, a wholly‑owned subsidiary of the Company,Systems Korea, Ltd., entered into a stock purchase agreement for the acquisition of Cal‑Weld, Inc. (“Cal‑Weld”)to acquire IAN Engineering Co., for $50,000, subject to customary adjustments. Ichor financed the acquisition with approximately $20,000 of cash on hand and $30,000 of incremental borrowing. Cal‑Weld is located in Tualatin, Oregon and Fremont, California and isLtd., a Seoul-based leader in theproviding locally-sourced design and fabricationmanufacturing of precision, high purity and industrial components, sub-systems, and systems. In connection with the acquisitiongas delivery systems to customers in South Korea, for a total of Cal‑Weld, the Company executed a Second Amendment to Credit Agreement (the “Amendment”) to amend the 2015 Credit Facility. The Amendment increased the Company’s term loan facility by $20,000, added an additional $20,000$8.0 million, which is inclusive of borrowing capacity under its revolving credit facility, and reduced its borrowing rate.
On August 8, 2017 the Company’s principal shareholder completed the registration and sale of approximately 5.4$4.0 million ordinary shares, bringing its ownership from 48.1% to 26.4%. In connection with the sale, certain executives of the Company sold 76,308 ordinary shares and exercised stock options, resulting in the issuance of an additional 51,277 ordinary shares.
On August 8, 2017, we received a preliminary judgment from arbitration in our working capital claim with the sellers of Ajax. We are currently evaluating the results of the preliminary judgment and considering additional legal response. Once finalized we will record the difference between the final judgment and our preliminary assessment of the amount to be returnedpaid if certain financial and operational milestones are achieved during the years ending December 31, 2018 and 2019. We expect the transaction to close by the company as a current period charge to earnings. The ultimate amount recorded could increaseend of our payments related to the working capital acquired up to an additional amount which is currently expected not to exceed $1,100.second quarter 2018.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included elsewhere in this report. The following discussion contains forward‑looking statements based upon our current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward‑looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in “Risk Factors”.
Overview
We are a leader in the design, engineering and manufacturing of critical fluid delivery subsystems for semiconductor capital equipment. Our primary offerings include gas and chemical delivery subsystems, collectively known as fluid delivery subsystems, which are key elements of the process tools used in the manufacturing of semiconductor devices. Our gas delivery subsystems deliver, monitor and control precise quantities of the specialized gases used in semiconductor manufacturing processes such as etch and deposition. Our chemical delivery subsystems precisely blend and dispense the reactive liquid chemistries used in semiconductor manufacturing processes such as electroplating and cleaning. We also manufacture certain components such as weldments and precision machined components for internal use in fluid delivery systems and for direct sales to our customers. This vertically integrated portion of our business is primarily focused on metal and plastic parts that are used in gas and chemical systems, respectively.
Fluid delivery subsystems ensure accurate measurement and uniform delivery of specialty gases and chemicals at critical steps in the semiconductor manufacturing process. Any malfunction or material degradation in fluid delivery reduces yields and increases the likelihood of manufacturing defects in these processes. Historically, semiconductor original equipment manufacturers (“OEMs”)OEMs internally designed and manufactured the fluid delivery subsystems used in their process tools. Currently, most OEMs outsource the design, engineering and manufacturing of their gas delivery subsystems to a few specialized suppliers, including us. Additionally, many OEMs are also increasingly outsourcing the design, engineering and manufacturing of their chemical delivery subsystems due to the increased fluid expertise required to manufacture these subsystems. Outsourcing these subsystems has allowed OEMs to leverage the suppliers’ highly specialized engineering, design and production skills while focusing their internal resources on their own value‑addedvalue-added processes. We believe that this outsourcing trend has enabled OEMs to reduce their fixed costs and development time, as well as provided significant growth opportunities for specialized subsystems suppliers like us.
We have a global footprint with volume production facilities in Malaysia, Singapore andMalaysia; Singapore; Tualatin, Oregon; Austin, Texas, Union City, California. We completed our initial public offering (“IPO”) in December 2016.California; Fremont, California; and Sauk Rapids, Minnesota. In the secondfirst quarter of 20172018 and 2016,2017, our two largest customers by sales were Lam Research and Applied Materials. During the secondfirst quarter of 20172018 and 2016,2017, respectively, we generated sales of $159.7$258.0 million and $95.4$148.7 million, gross profit of $23.5$42.6 million and $15.2$24.0 million, net income from continuing operations of $10.5$16.7 million and $3.3$13.0 million, and adjusted net income from continuing operations of $15.5$27.5 million and $7.0$14.6 million. Adjusted net income from continuing operations is a financial measure that is not calculated in accordance with generally accepted accounting principles in the U.S. (“GAAP”). See “Non‑GAAP Results” for a discussion of adjusted net income from continuing operations, an accompanying presentation of the most directly comparable financial measure calculated in accordance with GAAP, net income from continuing operations, and a reconciliation of the differences between adjusted net income from continuing operations and net income from continuing operations.
The following table sets forth our unaudited results of operations for the periods presented. The period‑to‑period comparison of results is not necessarily indicative of results for future periods.
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| March 30, 2018 |
|
| March 31, 2017 |
| ||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||
Consolidated Statements of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
| $ | 159,733 |
|
| $ | 95,365 |
|
| $ | 308,437 |
|
| $ | 168,652 |
|
| $ | 258,029 |
|
| $ | 148,704 |
|
Cost of sales |
|
| 136,227 |
|
|
| 80,185 |
|
|
| 260,916 |
|
|
| 141,547 |
|
|
| 215,430 |
|
|
| 124,689 |
|
Gross profit |
|
| 23,506 |
|
|
| 15,180 |
|
|
| 47,521 |
|
|
| 27,105 |
|
|
| 42,599 |
|
|
| 24,015 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 1,950 |
|
|
| 1,290 |
|
|
| 3,694 |
|
|
| 2,665 |
|
|
| 2,452 |
|
|
| 1,744 |
|
Selling, general and administrative |
|
| 7,984 |
|
|
| 7,183 |
|
|
| 14,842 |
|
|
| 13,547 |
| ||||||||
Selling, general, and administrative |
|
| 15,711 |
|
|
| 6,858 |
| ||||||||||||||||
Amortization of intangible assets |
|
| 1,803 |
|
|
| 1,803 |
|
|
| 3,598 |
|
|
| 3,406 |
|
|
| 3,879 |
|
|
| 1,795 |
|
Total operating expenses |
|
| 11,737 |
|
|
| 10,276 |
|
|
| 22,134 |
|
|
| 19,618 |
|
|
| 22,042 |
|
|
| 10,397 |
|
Operating income |
|
| 11,769 |
|
|
| 4,904 |
|
|
| 25,387 |
|
|
| 7,487 |
|
|
| 20,557 |
|
|
| 13,618 |
|
Interest expense |
|
| 675 |
|
|
| 1,160 |
|
|
| 1,365 |
|
|
| 2,062 |
|
|
| 2,504 |
|
|
| 690 |
|
Other expense (income), net |
|
| 151 |
|
|
| 244 |
|
|
| (398 | ) |
|
| (143 | ) |
|
| 241 |
|
|
| (549 | ) |
Income from continuing operations before income taxes |
|
| 10,943 |
|
|
| 3,500 |
|
|
| 24,420 |
|
|
| 5,568 |
|
|
| 17,812 |
|
|
| 13,477 |
|
Income tax expense from continuing operations |
|
| 473 |
|
|
| 225 |
|
|
| 998 |
|
|
| 461 |
|
|
| 1,091 |
|
|
| 525 |
|
Net income from continuing operations |
|
| 10,470 |
|
|
| 3,275 |
|
|
| 23,422 |
|
|
| 5,107 |
|
|
| 16,721 |
|
|
| 12,952 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations before taxes |
|
| (610 | ) |
|
| (2,305 | ) |
|
| (721 | ) |
|
| (4,029 | ) |
|
| — |
|
|
| (111 | ) |
Income tax expense from discontinued operations |
|
| — |
|
|
| 2 |
|
|
| 1 |
|
|
| 3 |
|
|
| — |
|
|
| 1 |
|
Net loss from discontinued operations |
|
| (610 | ) |
|
| (2,307 | ) |
|
| (722 | ) |
|
| (4,032 | ) |
|
| — |
|
|
| (112 | ) |
Net income |
| $ | 9,860 |
|
| $ | 968 |
|
| $ | 22,700 |
|
| $ | 1,075 |
|
| $ | 16,721 |
|
| $ | 12,840 |
|
The following table sets forth our unaudited results of operations as a percentage of our total sales for the periods presented.
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| March 30, 2018 |
|
| March 31, 2017 |
| ||||||
|
| (in thousands) |
|
|
|
| ||||||||||||||||||
Consolidated Statements of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
| 100.0 |
|
|
| 100.0 |
|
|
| 100.0 |
|
|
| 100.0 |
|
|
| 100.0 |
|
|
| 100.0 |
|
Cost of sales |
|
| 85.3 |
|
|
| 84.1 |
|
|
| 84.6 |
|
|
| 83.9 |
|
|
| 83.5 |
|
|
| 83.9 |
|
Gross profit |
|
| 14.7 |
|
|
| 15.9 |
|
|
| 15.4 |
|
|
| 16.1 |
|
|
| 16.5 |
|
|
| 16.1 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 1.2 |
|
|
| 1.4 |
|
|
| 1.2 |
|
|
| 1.6 |
|
|
| 1.0 |
|
|
| 1.2 |
|
Selling, general and administrative |
|
| 5.0 |
|
|
| 7.5 |
|
|
| 4.8 |
|
|
| 8.0 |
| ||||||||
Selling, general, and administrative |
|
| 6.1 |
|
|
| 4.6 |
| ||||||||||||||||
Amortization of intangible assets |
|
| 1.1 |
|
|
| 1.9 |
|
|
| 1.2 |
|
|
| 2.0 |
|
|
| 1.5 |
|
|
| 1.2 |
|
Total operating expenses |
|
| 7.3 |
|
|
| 10.8 |
|
|
| 7.2 |
|
|
| 11.6 |
|
|
| 8.5 |
|
|
| 7.0 |
|
Operating income |
|
| 7.4 |
|
|
| 5.1 |
|
|
| 8.2 |
|
|
| 4.4 |
|
|
| 8.0 |
|
|
| 9.2 |
|
Interest expense |
|
| 0.4 |
|
|
| 1.2 |
|
|
| 0.4 |
|
|
| 1.2 |
|
|
| 1.0 |
|
|
| 0.5 |
|
Other expense (income), net |
|
| 0.1 |
|
|
| 0.3 |
|
|
| (0.1 | ) |
|
| (0.1 | ) |
|
| 0.1 |
|
|
| (0.4 | ) |
Income from continuing operations before income taxes |
|
| 6.9 |
|
|
| 3.7 |
|
|
| 7.9 |
|
|
| 3.3 |
|
|
| 6.9 |
|
|
| 9.1 |
|
Income tax expense from continuing operations |
|
| 0.3 |
|
|
| 0.2 |
|
|
| 0.3 |
|
|
| 0.3 |
|
|
| 0.4 |
|
|
| 0.4 |
|
Net income from continuing operations |
|
| 6.6 |
|
|
| 3.4 |
|
|
| 7.6 |
|
|
| 3.0 |
|
|
| 6.5 |
|
|
| 8.7 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations before taxes |
|
| (0.4 | ) |
|
| (2.4 | ) |
|
| (0.2 | ) |
|
| (2.4 | ) |
|
| 0.0 |
|
|
| (0.1 | ) |
Income tax expense from discontinued operations |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
Net loss from discontinued operations |
|
| (0.4 | ) |
|
| (2.4 | ) |
|
| (0.2 | ) |
|
| (2.4 | ) |
|
| 0.0 |
|
|
| (0.1 | ) |
Net income |
|
| 6.2 |
|
|
| 1.0 |
|
|
| 7.4 |
|
|
| 0.6 |
|
|
| 6.5 |
|
|
| 8.6 |
|
Comparison of the Three and Six Months Ended JuneMarch 30, 20172018 and June 24, 2016March 31, 2017
Sales
|
| Three Months Ended |
|
| Change |
|
| Six Months Ended |
|
| Change |
| ||||||||||||||||||||
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| Amount |
|
| % |
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| Amount |
|
| % |
| ||||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||||||||||
Sales |
| $ | 159,733 |
|
| $ | 95,365 |
|
| $ | 64,368 |
|
|
| 67.5 | % |
| $ | 308,437 |
|
| $ | 168,652 |
|
| $ | 139,785 |
|
|
| 82.9 | % |
| Three Months Ended |
|
| Change |
| ||||||||||
| March 30, 2018 |
|
| March 31, 2017 |
|
| Amount |
|
| % |
| ||||
| (dollars in thousands) |
| |||||||||||||
Net sales | $ | 258,029 |
|
| $ | 148,704 |
|
| $ | 109,325 |
|
|
| 73.5 | % |
The increase in net sales from the secondfirst quarter of 20162017 to the secondfirst quarter of 20172018 was primarily related to an increase in volume.volume resulting from industry growth, our acquisitions of Cal‑Weld and Talon in July 2017 and December 2017, respectively, and market share gains. The volume increase was due to an approximate 4.2%, or approximately $11.5 million, increase in wafer fabrication equipment production, which utilize our market share at our two largest customers,gas and an approximately $52.9fluid delivery systems. Cal‑Weld and Talon collectively contributed net sales of $57.4 million increase induring the volumefirst quarter of purchases primarily by our two largest customers driven by overall industry growth. We refer to the volume of purchases from us by a customer of ours relative to its other suppliers as our market share of that customer.2018. On a geographic basis, sales in the U.S. increased by $18.3$84.1 million in the secondfirst quarter of 20172018 to $88.5$162.2 million. Foreign sales increased by $26.5$25.2 million in the secondfirst quarter of 20172018 to $71.2 million.
The increase in sales from the six months ended June 24, 2016 to the six months ended June 30, 2017 was primarily related to an increase in volume. The volume increase was due to an approximate 4.9%, or approximately $27.5 million, increase in our market share at our two largest customers, and an approximately $104.9 million increase in the volume of purchases primarily by our two largest customers driven by overall industry growth. We refer to the volume of purchases from us by a customer of ours relative to its other suppliers as our market share of that customer. Ajax contributed and incremental $7.4 million during the six months ended June 30, 2017 as compared to the six months ended June 24, 2016. On a geographic basis, sales in the U.S. increased by $46.5 million in the six months ended June 30, 2017 to $166.6 million. Foreign sales increased by $66.8 million in the six months ended June 30, 2017 to $141.8$95.8 million.
Cost of Sales and Gross Margin
|
| Three Months Ended |
|
| Change |
|
| Six Months Ended |
|
| Change |
| Three Months Ended |
|
| Change |
| ||||||||||||||||||||||||||||||
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| Amount |
|
| % |
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| Amount |
|
| % |
| March 30, 2018 |
|
| March 31, 2017 |
|
| Amount |
|
| % |
| ||||||||||||
|
| (dollars in thousands) |
| (dollars in thousands) |
| ||||||||||||||||||||||||||||||||||||||||||
Cost of sales |
| $ | 136,227 |
|
| $ | 80,185 |
|
| $ | 56,042 |
|
|
| 69.9 | % |
| $ | 260,916 |
|
| $ | 141,547 |
|
| $ | 119,369 |
|
|
| 84.3 | % | $ | 215,430 |
|
| $ | 124,689 |
|
| $ | 90,741 |
|
|
| 72.8 | % |
Gross profit |
| $ | 23,506 |
|
| $ | 15,180 |
|
| $ | 8,326 |
|
|
| 54.8 | % |
| $ | 47,521 |
|
| $ | 27,105 |
|
| $ | 20,416 |
|
|
| 75.3 | % | $ | 42,599 |
|
| $ | 24,015 |
|
| $ | 18,584 |
|
|
| 77.4 | % |
Gross margin |
|
| 14.7 | % |
|
| 15.9 | % |
|
|
|
|
| - 120 bps |
|
|
| 15.4 | % |
|
| 16.1 | % |
|
|
|
|
| - 70 bps |
|
| 16.5 | % |
|
| 16.1 | % |
|
|
|
|
| + 40 bps |
|
The increase in cost of sales from the secondfirst quarter of 20162018 to the secondfirst quarter of 2017 and from the six months ended June 24, 2016 to the six months ended June 30, 2017 was primarily due to the increase in sales volume. The increase in absolute dollars of gross profit was driven primarily by an increase in sales volume.
Our gross margin for the first quarter of 2018 was favorably impacted from our acquisitions of Cal‑Weld and Talon, with margins that were accretive to our historical business. As part of our purchase price allocation for our acquisition of Talon, we recorded acquired inventory at fair value, resulting in a fair value step-up to acquired inventory of $6.2 million. In the secondfirst quarter of 20172018, we completedreleased the re‑implementationremaining $4.5 million of our Oracle system in our Singapore and Malaysia subsidiaries to allow for a systems based reporting of results from what had previously been a manual process. In the process of performing the re‑implementation we identified that our previous method had resulted in an accumulated overstatement of inventory as of March 31, 2017 of approximately $1.75 million. In conjunction with the re‑implementation we have corrected this overstatement in the second quarter of 2017 with a chargefair value adjustment to cost of sales of $1.75 million, which impacts both net income and earnings per share. We have evaluatedas acquired inventory was sold during the inventory overstatement and determined that it accumulated over historical periods from when operations were first commenced in our foreign sites up to and including 2016. We have estimated that the overstatement was not material to any individual historical period and estimate that the impact to reported gross margins in 2014, 2015, and 2016 was 0 basis points, 10 basis points, and 10 basis points, respectively. Our estimate of the overstatement by period was $0.8 million prior to 2014, $0.1 million in 2014, $0.3 million in 2015, and $0.5 million in 2016.quarter. The impact of this charge accounts for a decrease to reported gross margin of 110 basis points and 60 basis points in the second quarter of 2017 and the six months ended June 30, 2017, respectively. The overstatement is not expected to recur in future quarters.
Additionally gross margin was impacted by approximately 60 basis points and 30180 basis points for the secondfirst quarter of 2017 and the six months ended June 30, 2017, respectively, as we outsourced certain components normally built internally as our capacity additions lagged the significant revenue increase, and we experienced labor inefficiencies due to uneven timing of receipt of these components in relation to our production schedule. We have brought our internal manufacturing capacity on‑line for these parts and do not expect significant outsourcing for the balance2018. As of the year.end of the first quarter of 2018, this fair value adjustment has been fully released.
These reductions to gross margin percentage were partially offset by improved leverage of our fixed overhead costs on increased volume.
|
| Three Months Ended |
|
| Change |
|
| Six Months Ended |
|
| Change |
| ||||||||||||||||||||
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| Amount |
|
| % |
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| Amount |
|
| % |
| ||||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||||||||||
Research and development |
| $ | 1,950 |
|
| $ | 1,290 |
|
| $ | 660 |
|
|
| 51.2 | % |
| $ | 3,694 |
|
| $ | 2,665 |
|
| $ | 1,029 |
|
|
| 38.6 | % |
| Three Months Ended |
|
| Change |
| ||||||||||
| March 30, 2018 |
|
| March 31, 2017 |
|
| Amount |
|
| % |
| ||||
| (dollars in thousands) |
| |||||||||||||
Research and development | $ | 2,452 |
|
| $ | 1,744 |
|
| $ | 708 |
|
|
| 40.6 | % |
The increase in research and development expenses from the second quarter of 2016 to the secondfirst quarter of 2017 and from the six months ended June 24, 2016 to the six months ended June 30, 2017first quarter of 2018 was primarily due to our acquisition of Talon, increased share-based compensation expense, and an increase in headcount and consulting expense to support additional projects.
Selling, General, and Administrative
|
| Three Months Ended |
|
| Change |
|
| Six Months Ended |
|
| Change |
| ||||||||||||||||||||
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| Amount |
|
| % |
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| Amount |
|
| % |
| ||||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||||||||||
Selling, general, and administrative |
| $ | 7,984 |
|
| $ | 7,183 |
|
| $ | 801 |
|
|
| 11.2 | % |
| $ | 14,842 |
|
| $ | 13,547 |
|
| $ | 1,295 |
|
|
| 9.6 | % |
| Three Months Ended |
|
| Change |
| ||||||||||
| March 30, 2018 |
|
| March 31, 2017 |
|
| Amount |
|
| % |
| ||||
| (dollars in thousands) |
| |||||||||||||
Selling, general, and administrative | $ | 15,711 |
|
| $ | 6,858 |
|
| $ | 8,853 |
|
|
| 129.1 | % |
The increase in selling, general, and administrative expensesexpense from the secondfirst quarter of 20162017 to the secondfirst quarter of 20172018 was primarily due to increasedincremental operating expenses from our acquisitions of Cal‑Weld and Talon of $3.4 million, increased share-based compensation expense of $3.2 million, inclusive of $2.9 million in share-based compensation expense associated with modifying our former CFO’s outstanding equity awards, additional expense incurred from the secondary offeringseparation of our ordinary shares by Francisco Partners (“FP”)former CFO of $1.0 million, and increased public company costs, offset in part by reductions in acquisition‑related expenses.
The increase in selling, general, and administrative expensesa recovery of fees from the six months ended June 24, 2016 to the six months ended June 30, 2017 was primarily due to increased employee‑related costs from incremental Ajax operating expenses and headcount to support increased sales volumes, increased expenses resulting from the secondary offering of our ordinary shares by Francisco Partners, and increased public company costs, offset in part by reductions in acquisition‑related expenses and reduced consulting fees paid to Francisco Partners Consulting LLC (“FPC”). of $0.3 million that occurred in the first quarter of 2017 that did not occur in the first quarter of 2018. The expenses incurred in connection with the resignation of our former CFO were due to separation benefits that became effective in January 2018.
Amortization of Intangible Assets
|
| Three Months Ended |
|
| Change |
|
| Six Months Ended |
|
| Change |
| ||||||||||||||||||||
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| Amount |
|
| % |
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| Amount |
|
| % |
| ||||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||||||||||
Amortization of intangibles assets |
| $ | 1,803 |
|
| $ | 1,803 |
|
| $ | - |
|
|
| 0.0 | % |
| $ | 3,598 |
|
| $ | 3,406 |
|
| $ | 192 |
|
|
| 5.6 | % |
| Three Months Ended |
|
| Change |
| ||||||||||
| March 30, 2018 |
|
| March 31, 2017 |
|
| Amount |
|
| % |
| ||||
| (dollars in thousands) |
| |||||||||||||
Amortization of intangibles assets | $ | 3,879 |
|
| $ | 1,795 |
|
| $ | 2,084 |
|
|
| 116.1 | % |
Amortization expense was unchangedincreased from the second quarter of 2016 to the secondfirst quarter of 2017 as there was no addition or disposalto the first quarter of intangible assets during the period.
The increase in2018 due to incremental amortization expense from the six months ended June 24, 2016 to the six months ended June 30, 2017 was dueintangible assets acquired in connection with our acquisitions of Cal‑Weld and Talon.
The fair value assigned to intangible assets acquired in connection with our acquisitionacquisitions of Ajax.Cal‑Weld and Talon is still preliminary. Amortization of intangible assets may change in future periods depending on the final fair value assigned to the acquired intangible assets.
|
| Three Months Ended |
|
| Change |
|
| Six Months Ended |
|
| Change |
| ||||||||||||||||||||
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| Amount |
|
| % |
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| Amount |
|
| % |
| ||||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||||||||||
Interest expense, net |
| $ | 675 |
|
| $ | 1,160 |
|
| $ | (485 | ) |
|
| -41.8 | % |
| $ | 1,365 |
|
| $ | 2,062 |
|
| $ | (697 | ) |
|
| -33.8 | % |
| Three Months Ended |
|
| Change |
| ||||||||||
| March 30, 2018 |
|
| March 31, 2017 |
|
| Amount |
|
| % |
| ||||
| (dollars in thousands) |
| |||||||||||||
Interest expense | $ | 2,504 |
|
| $ | 690 |
|
| $ | 1,814 |
|
|
| 262.9 | % |
The decreaseincrease in interest expense net from the second quarter of 2016 to the secondfirst quarter of 2017 to the first quarter of 2018 was due to a decreasean increase in the average amount borrowed in 2017during the first quarter of 2018 as a result of the pay downan additional $30.0 million and $120.0 million borrowed to fund our acquisitions of debt in December 2016 using proceeds from our IPOCal‑Weld and a 10Talon, respectively, partially offset by an 80 basis point decrease in our average interest rate during the secondfirst quarter of 20172018 compared to the secondfirst quarter of 2016.
The decrease in interest expense, net from the six months ended June 24, 2016 to the six months ended June 30, 2017 was due to a decrease in the average amount borrowed in 2017 as a result of the pay down of debt in December 2016 using proceeds from our IPO, partially offset by 20 basis point increase our average interest rate during the six months ended June 30, 2017 compared to the six months ended June 24, 2016.2017.
Total borrowings outstanding at JuneMarch 30, 2017,2018, net of debt issuance costs, was $38.2were $187.6 million, compared to $78.6$38.1 million at June 24, 2016.March 31, 2017.
Other Expense (Income), Net
|
| Three Months Ended |
|
| Change |
|
| Six Months Ended |
|
| Change |
| ||||||||||||||||||||
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| Amount |
|
| % |
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| Amount |
|
| % |
| ||||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||||||||||
Other expense (income), net |
| $ | 151 |
|
| $ | 244 |
|
| $ | (93 | ) |
|
| -38.1 | % |
| $ | (398 | ) |
| $ | (143 | ) |
| $ | (255 | ) |
|
| 178.3 | % |
| Three Months Ended |
|
| Change | |||||||||
| March 30, 2018 |
|
| March 31, 2017 |
|
| Amount |
|
| % | |||
| (dollars in thousands) | ||||||||||||
Other expense (income), net | $ | 241 |
|
| $ | (549 | ) |
| $ | 790 |
|
| n/m |
The change in other expense (income), net from the secondfirst quarter of 20162017 to the secondfirst quarter of 20172018 was primarily due to exchange rate fluctuations on transactions denominated in the local currencies of our foreign operations, principally the Singapore Dollar, Malaysian Ringgit, and British Pound.
The increase in other income, net from Additionally, the six months ended June 24, 2016 to the six months ended June 30,first quarter of 2017 was primarily due toincluded a gain on the sale of our cost method investment, CHawk Technology International, Inc. (“CHawk”) of $0.2 million that occurreddid not repeat in the first quarter of 2017.2018.
Income Tax ExpenseBenefit from Continuing Operations
|
| Three Months Ended |
|
| Change |
|
| Six Months Ended |
|
| Change |
| ||||||||||||||||||||
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| Amount |
|
| % |
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| Amount |
|
| % |
| ||||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||||||||||
Income tax expense from continuing operations |
| $ | 473 |
|
| $ | 225 |
|
| $ | 248 |
|
|
| 110.2 | % |
| $ | 998 |
|
| $ | 461 |
|
| $ | 537 |
|
|
| 116.5 | % |
| Three Months Ended |
|
| Change |
| ||||||||||
| March 30, 2018 |
|
| March 31, 2017 |
|
| Amount |
|
| % |
| ||||
| (dollars in thousands) |
| |||||||||||||
Income tax benefit from continuing operations | $ | 1,091 |
|
| $ | 525 |
|
| $ | 566 |
|
|
| 107.8 | % |
The increase in the income tax expense from continuing operations from the second quarter of 2016 to the secondfirst quarter of 2017 and from the six months ended June 24, 2016 to the six months ended June 30, 2017first quarter of 2018 was primarily due to increased withholdings taxes on intercompany notes betweena valuation allowance against our U.S. and foreigndeferred tax jurisdictions.assets in 2017, but not in 2018, partially offset by excess tax benefits from share-based compensation.
Non‑GAAP Results
Management uses non‑GAAPnon-GAAP adjusted net income from continuing operations to evaluate ourIchor’s operating and financial results. We believeIchor believes the presentation of non‑GAAPnon-GAAP results is useful to investors for analyzing business trends and comparing performance to prior periods, along with enhancing investors’ ability to view ourIchor’s results from management’s perspective. Non‑GAAPNon-GAAP adjusted net income from continuing operations is defined as: (1) net income from continuing operations; (2) excluding amortization of intangible assets, share-based compensation expense, non-recurring expenses including adjustments to the cost of goods sold and other non-recurring expenses;a loss on the Ajax acquisition arbitration settlement, and the tax adjustments related to those non‑GAAPnon-GAAP adjustments; and (3) non-recurring discrete tax items including tax benefits from acquisitions, the tax benefit associated withfrom re-characterizing intercompany debt to equity, and the acquisitiontax impact from enactment of Ajax; and certain other non‑recurring charges. Non‑GAAPthe Tax Act. Non-GAAP adjusted diluted EPS is defined as non‑GAAPnon-GAAP adjusted net income from continuing operations divided by adjustedweighted average diluted ordinary shares which assumesoutstanding during the IPO shares sold, the conversion of preferred shares into ordinary shares, and vesting of restricted shares and options in connection with the IPO occurred at the beginning of the measurement period.
The following table presents our unaudited non‑GAAP adjusted net income from continuing operations and a reconciliation from net income from continuing operations, the most comparable GAAP measure, for the periods indicated:
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| March 30, 2018 |
|
| March 31, 2017 |
| ||||||
|
| (in thousands, except share and per share amounts) |
|
| (dollars in thousands, except per share amounts) |
| ||||||||||||||||||
Non-GAAP Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations |
| $ | 10,470 |
|
| $ | 3,275 |
|
| $ | 23,422 |
|
| $ | 5,107 |
|
| $ | 16,721 |
|
| $ | 12,952 |
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets |
|
| 1,803 |
|
|
| 1,803 |
|
|
| 3,598 |
|
|
| 3,406 |
|
|
| 3,879 |
|
|
| 1,795 |
|
Share-based compensation |
|
| 569 |
|
|
| 555 |
|
|
| 913 |
|
|
| 972 |
|
|
| 3,791 |
|
|
| 344 |
|
Other non-recurring expenses (1) |
|
| 952 |
|
|
| 1,342 |
|
|
| 452 |
|
|
| 2,055 |
| ||||||||
Other non-recurring expense (income), net (2) |
|
| 1,439 |
|
|
| (500 | ) | ||||||||||||||||
Tax adjustments related to non-GAAP adjustments |
|
| (18 | ) |
|
| (19 | ) |
|
| (42 | ) |
|
| (39 | ) |
|
| (2,904 | ) |
|
| (24 | ) |
Tax benefit related to Ajax acquisition |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||
Adjustments to cost of goods sold (3) |
|
| 1,752 |
|
|
| — |
|
|
| 1,752 |
|
|
| — |
| ||||||||
Fair value adjustment to inventory from acquisitions (3) |
|
| 4,524 |
|
|
| — |
| ||||||||||||||||
Non-GAAP adjusted net income from continuing operations |
| $ | 15,528 |
|
| $ | 6,956 |
|
| $ | 30,095 |
|
| $ | 11,501 |
|
| $ | 27,450 |
|
| $ | 14,567 |
|
Non-GAAP adjusted diluted EPS (4) |
| $ | 0.60 |
|
| $ | 0.29 |
|
| $ | 1.16 |
|
| $ | 0.48 |
| ||||||||
Shares used to compute diluted EPS (5) |
|
| 26,063,527 |
|
|
| 24,029,793 |
|
|
| 25,868,403 |
|
|
| 24,037,305 |
| ||||||||
Non-GAAP adjusted diluted EPS |
| $ | 1.03 |
|
| $ | 0.57 |
| ||||||||||||||||
Shares used to compute diluted EPS |
|
| 26,734,710 |
|
|
| 25,640,089 |
|
| (1) | Included in |
| (2) |
|
Included in this amount for the first quarter of 2017 are (i) a refund from FPC and (ii) a gain on sale of our investment in CHawk.
| (3) |
|
|
|
|
|
Non‑GAAP adjusted net income from continuing operations has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for net income or any of our other operating results reported under GAAP. Other companies may calculate adjusted net income differently or may use other measures to evaluate their performance, both of which could reduce the usefulness of our adjusted net income as a tool for comparison.
Because of these limitations, you should consider non‑GAAP adjusted net income from continuing operations alongside other financial performance measures, including net income from continuing operations and other financial results presented in accordance with GAAP. In addition, in evaluating non‑GAAP adjusted net income, you should be aware that in the future we will incur expenses such as those that are the subject of adjustments in deriving adjusted net income and you should not infer from our presentation of adjusted net income that our future results will not be affected by these expenses or any unusual or non‑recurring items.
Liquidity and Capital Resources
We had cash and restricted cash of $66.8$63.8 million as of JuneMarch 30, 2017.2018. Our principal uses of liquidity are to fund our working capital needs and purchase new capital equipment. The increasenet decrease in cash of $5.5 million during the first quarter of 2018 was primarily due to $7.5capital expenditures of $3.7 million, of net cash provided by operating activities, $7.3 million of proceeds from the exercise of the underwriters’ over‑allotment option in January 2017 in connection with our IPO, and $2.2 million of proceeds from the exercise of stock options by certain employees of the Company, partially offset by net cash used in investingfinancing activities of $2.8$1.1 million, and net cash used in operating activities of $0.8 million.
We believe that our cash, the amounts available under our revolving credit facility, and our cash flows from operations together with the net proceeds from our IPO, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months.
Cash Flow Analysis
|
| Six Months Ended |
| |||||
|
| June 30, 2017 |
|
| June 24, 2016 |
| ||
|
| (in thousands) |
| |||||
Cash provided by operating activities |
| $ | 7,508 |
|
| $ | 3,910 |
|
Cash used in investing activities |
|
| (2,784 | ) |
|
| (17,737 | ) |
Cash provided by financing activities |
|
| 9,466 |
|
|
| 15,710 |
|
Net increase in cash and restricted cash |
| $ | 14,190 |
|
| $ | 1,883 |
|
|
| Three Months Ended |
| |||||
|
| March 30, 2018 |
|
| March 31, 2017 |
| ||
|
| (in thousands) |
| |||||
Cash used in operating activities |
| $ | (784 | ) |
| $ | (11,677 | ) |
Cash provided by (used in) investing activities |
|
| (3,668 | ) |
|
| 156 |
|
Cash provided by (used in) financing activities |
|
| (1,056 | ) |
|
| 7,277 |
|
Net decrease in cash |
| $ | (5,508 | ) |
| $ | (4,244 | ) |
Operating Activities
We generated $7.5used $0.8 million of cash fromin operating activities during the six months ended June 30, 2017first quarter of 2018 due to net income of $22.7 million and non‑cash charges of $5.9 million, partially offset by a net increase of $21.1$27.3 million in our net operating assets and liabilities.liabilities, partially offset by net income of $16.7 million and net non‑cash charges of $9.7 million. Non‑cash charges primarily consist of $5.2$5.8 million in depreciation and amortization $0.9and $3.8 million in share‑basedshare-based compensation and amortization of debt issuance costs of $0.3 million, partially offset by deferred taxes of $0.2 million and a gain on the sale of our investment in CHawk of $0.2 million.expense. The increase in net operating assets and liabilities was primarily due to an increase in accounts receivable of $13.4$26.4 million, resulting fromdue to increased sales volume and timing of shipments and customer payments during the period,quarter, and an increase in inventories of $26.1$10.5 million, resulting fromdue to increased materials purchases to support increased demand. This increase was primarilydemand, partially offset by an increase of $13.6 million in accounts payable resulting from increased inventory purchases.of $8.7 million.
Investing Activities
Cash used in investing activities during the six months ended June 30, 2017first quarter of 2018 of $3.7 million was $2.8from capital expenditures to support current and future growth.
Financing Activities
Net cash used in financing activities was $1.1 million due to $5.2share repurchases of $5.0 million and debt issuance costs of $2.1 million in capital expenditures,connection with the refinancing of our credit facilities in February 2018, partially offset by $2.4$3.4 million in proceeds from the salerelated to issuances of ordinary shares under our investments in Ajax Foresight Global Manufacturing Sdn. Bhd. (“AFGM”)share-based compensation plans and CHawk and the settlement of our note receivable from AFGM.
Financing Activities
We generated $9.5$2.6 million in cash from financing activities during the six months ended June 30, 2017, which consists $7.3 millionnet borrowing of net proceeds from the exercise of the underwriters’ over‑allotment option in January 2017long-term debt in connection with our IPO and $2.2 million of proceeds from the exercise of stock options by certain employees of the Company.refinancing.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our judgments and estimates including those related to revenue recognition, impairment of goodwill and intangible assets, income taxes, advertising expense and share‑based compensation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
The accounting policies we believe to be most critical to understanding our financial results and condition and that require complex and subjective management judgments and estimates are identified and described in our annual consolidated financial statements and the notes included in our Annual Report on Form 10‑K for the year ended December 30, 201629, 2017 (our “Annual Report”).
ITEM 3. QUANTITATIVE AND QUALITATIVEQUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Risk
Currently, substantially all of our sales and arrangements with third‑party suppliers provide for pricing and payment in U.S. dollars and, therefore, are not subject to material exchange rate fluctuations. As a result, we do not expect foreign currency exchange rate fluctuations to have a material effect on our results of operations. However, increases in the value of the U.S. dollar relative to other currencies would make our products more expensive relative to competing products priced in such other currencies, which could negatively impact our ability to compete. Conversely, decreases in the value of the U.S. dollar relative to other currencies could result in our foreign suppliers raising their prices in order to continue doing business with us.
While not currently significant, we do have certain operating expenses that are denominated in currencies of the countries in which our operations are located, and may be subject to fluctuations due to foreign currency exchange rates, particularly the Singapore dollar, Malaysian Ringgit, British Pound, and Euro. Fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our statement of operations. To date, foreign currency transaction gains and losses have not been material to our financial statements, and we have not engaged in any foreign currency hedging transactions.
Interest Rate Risk
We had total outstanding debt of $39.8$192.2 million as of JuneMarch 30, 2017, no portion2018, exclusive of debt issuance costs, of which $6.6 million was due within 12 months. The outstanding amount of debt reflected in our consolidated financial statements included elsewhere in this report is net of $1.6$4.6 million of debt issuance costs as of JuneMarch 30, 2017.2018.
We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. The interest rate on a significant majority of our outstanding debt is variable which also reduces our exposure to thesebased on LIBOR, the Prime Rate, or the Federal Funds Rate. A hypothetical 1% change in the interest rate risks. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our financial statements.outstanding debt would have resulted in a $0.5 million change to interest expense during the first quarter of 2018, or $1.9 million on an annualized basis.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a‑13a‑15(b) under the Exchange Act, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer or CEO, and Chief Financial Officer, or CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a‑13a‑15(e) and 15d‑15d‑15(e) under the Exchange Act) as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. We evaluated the effectiveness of our disclosure controls and procedures as of March 30, 2018, with the participation of our CEO and CFO. Based upon thaton this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were not effective becauseas of the material weakness in our internal control described below, and did not provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.March 30, 2018.
Changes in Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed by, or under the supervision of, a company’s principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate. If we cannot provide reliable financial information, our business, operating results and share price could be negatively impacted.
DuringIn connection with the second quarteradoption of 2017,new revenue recognition accounting standards, as codified in ASC Topic 606, we identified a material weakness inimplemented certain internal controls to ensure we adequately evaluated our contracts with our customers and properly assessed the impact of the new revenue recognition accounting standards on our financial statements to facilitate its adoption at the beginning of our first fiscal 2018 quarter. There were no significant changes to our internal control over financial reporting related to ineffective periodic risk assessment over control activities that ensure the ending inventory balances of our Malaysia and Singapore subsidiaries were recorded at the appropriate U.S. Dollar functional currency rate. During our previous consolidation process, we had a manual process that translated these inventory balances into the U.S. Dollar functional currency at incorrect rates for these subsidiaries due to system limitations, and we did not implement a control to reconcile the ending inventory balance at our Malaysia and Singapore subsidiaries to the final inventory balance reported in our consolidated financial statements. This material weakness resulted in an accumulated overstatementadoption of inventory as of March 31, 2017 of approximately $1.75 million. We have completed the re‑implementation of our Oracle system, which allows for a systems‑based calculation of inventory purchases and ending inventory at the proper U.S. Dollar functional currency rates, and we have implemented a control to reconcile the final Malaysia and Singapore inventory sub‑ledger balances to the final balances recorded in consolidation. While we believe that the new system will correctly record inventory purchases and that our newly implemented reconciliation control will operate at a sufficient level of precision to identify any significant errors, management will continue to monitor the mitigation measures taken as the controls will need to operate for a reasonable period of time to determine whether they are operating effectively to remediate the material weakness.accounting standards.
For a discussion of legal proceedings, see “Note“Note 6 – Commitments and Contingencies” in the Notes to Financial Statements (Unaudited) included in this report.
The risks described in Part I, Item 1A, "Risk Factors,"There have been no material changes in our 2016 Annual Report andrisk factors from those disclosed in our 2017 Quarterly Report for the quarter ended March 31, 2017Annual Report. These risk factors could materially and adversely affect our business, financial condition and results of operations, and the trading price of our ordinary shares could decline. These risk factors do not identify all risks that we face – our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. Below we describe additional risks that supplement the risks described in our 2016 Annual Report and our 2017 Quarterly Report for the quarter ended March 31, 2017.
In the second quarter of 2017, we identified a material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our share price.
During the second quarter of 2017, we identified a material weakness in our internal control over financial reporting related to ineffective periodic risk assessment over control activities that ensure the ending inventory balances of our Malaysia and Singapore subsidiaries were recorded at the appropriate U.S. Dollar functional currency rate. During our previous consolidation process, we had a manual process that translated these inventory balances into the U.S. Dollar functional currency at incorrect rates for these subsidiaries due to system limitations, and we did not implement a control to reconcile the ending inventory balance at our Malaysia and Singapore subsidiaries to the final inventory balance reported in our consolidated financial statements. This material weakness resulted in an accumulated overstatement of inventory as of March 31, 2017 of approximately $1.75 million. We have completed the re‑implementation of our Oracle system, which allows for a systems‑based calculation of inventory purchases and ending inventory at the proper U.S. Dollar functional currency rates, and we have implemented a control to reconcile the final Malaysia and Singapore inventory sub‑ledger balances to the final balances recorded in consolidation. While we believe that the new system will correctly record inventory purchases and that our newly implemented reconciliation control will operate at a sufficient level of precision to identify any significant errors, management will continue to monitor the mitigation measures taken as the controls will need to operate for a reasonable period of time to determine whether they are operating effectively to remediate the material weakness.
If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.
ITEM 2. UNREGISTEREDUNREGISTERED SALES OF EQUITYEQUITY SECURITIES AND USE OF PROCEEDS
UseShare Repurchase Program
Information related to repurchases of Proceeds from Initial Public Offering
On December 8, 2016, in connection with our IPO, we registered under the Securities Act (i) 6,759,445 ordinary shares includingduring the underwriters’ over-allotment option, pursuant to a registration statement on Form S‑1 (File No. 333-214588) and (ii) 146,945 ordinary shares pursuant to a registration statement on Form S‑1 (File No. 333-214995). We completed our IPO on December 14, 2016 at a price to the public of $9.00 per share, for gross proceeds of approximately $52.9 million.three months ended March 30, 2018 is as follows:
We received net proceeds of approximately $47.1 million (after underwriters’ discounts and commissions of $3.7 million and additional offering related costs of approximately $2.1 million). The joint lead bookrunners of the offering were Deutsche Bank Securities Inc. and Stifel, Nicolaus & Company, Incorporated. In January 2017, the underwriters exercised their over-allotment option to purchase an additional 881,667 ordinary shares at a price of $9.00 per share, providing us with additional gross proceeds of approximately $7.9 million and net proceeds of approximately $7.3 million, after deducting underwriting discounts, commissions and other offering related costs.
|
| Total Number of Shares Repurchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Program |
|
| Amount Available Under Repurchase Program (1) |
| ||||
|
| (dollars in thousands, except share and per share amounts) |
| |||||||||||||
February 1, 2018 through February 28, 2018 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 50,000 |
|
March 1, 2018 through March 30, 2018 |
|
| 195,750 |
|
| $ | 25.51 |
|
|
| 195,750 |
|
| $ | 45,000 |
|
Total |
|
| 195,750 |
|
| $ | 25.51 |
|
|
| 195,750 |
|
| $ | 45,000 |
|
There was no material change in the use of proceeds from our initial public offering as described in our prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) under the Securities Act on December 12, 2016.
(1) | The amounts presented in this column are the remaining total authorized value to be spent after each month’s repurchases. On February 15, 2018, we announced that our Board of Directors authorized a $50.0 million share repurchase program under which we may repurchase our ordinary shares in the open market or through privately negotiated transactions, depending on market conditions and other factors. Repurchases were funded with cash on-hand, cash flows from operations, and amounts available under our revolver. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
Exhibit Number |
| Description |
|
|
|
| ||
| ||
| ||
| ||
| ||
101.INS* |
| XBRL Instance Document |
101.SCH* |
| XBRL Taxonomy Extension Schema Document |
101.CAL* |
| XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* |
| XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* |
| XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* |
| XBRL Taxonomy Extension Presentation Linkbase Document |
* | Filed herewith. |
** | Furnished herewith and not filed. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| ICHOR HOLDINGS, LTD. | |
|
|
|
|
Date: |
| By: | /s/ Thomas M. Rohrs |
|
|
| Thomas M. Rohrs |
|
|
| Executive Chairman, Director and Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
Date: |
| By: | /s/ |
|
|
|
|
|
|
|
|
23