Docoh
Loading...

ICHR Ichor

Filed: 5 May 21, 9:00am

 

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 March 26, 2021

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
Identification No.)

3185 Laurelview Ct.

Fremont, CA

94538

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (510) 897-5200

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Ordinary Shares, par value $0.0001

ICHR

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non‑accelerated filer

 

  

Small reporting company

 

 

Emerging Growth Company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

As of April 29, 2021, the registrant had 28,079,224 ordinary shares, $0.0001 par value per share, outstanding.

 


 

TABLE OF CONTENTS

 

 

 

 


 

PART I

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

ICHOR HOLDINGS, LTD.

Consolidated Balance Sheets

(dollars in thousands, except per share amounts)

(unaudited)

 

 

 

March 26,

2021

 

 

December 25,

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

242,946

 

 

$

252,899

 

Accounts receivable, net

 

 

108,674

 

 

 

100,977

 

Inventories

 

 

144,062

 

 

 

134,756

 

Prepaid expenses and other current assets

 

 

7,347

 

 

 

7,082

 

Total current assets

 

 

503,029

 

 

 

495,714

 

Property and equipment, net

 

 

46,849

 

 

 

41,811

 

Operating lease right-of-use assets

 

 

9,378

 

 

 

10,088

 

Other noncurrent assets

 

 

5,800

 

 

 

5,503

 

Deferred tax assets, net

 

 

5,812

 

 

 

6,324

 

Intangible assets, net

 

 

36,454

 

 

 

39,845

 

Goodwill

 

 

174,887

 

 

 

174,887

 

Total assets

 

$

782,209

 

 

$

774,172

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

140,669

 

 

$

116,664

 

Accrued liabilities

 

 

16,992

 

 

 

20,792

 

Other current liabilities

 

 

11,778

 

 

 

10,700

 

Current portion of long-term debt

 

 

8,750

 

 

 

8,750

 

Current portion of lease liabilities

 

 

4,895

 

 

 

5,128

 

Total current liabilities

 

 

183,084

 

 

 

162,034

 

Long-term debt, less current portion, net

 

 

159,576

 

 

 

191,522

 

Lease liabilities, less current portion

 

 

4,804

 

 

 

5,272

 

Deferred tax liabilities, net

 

 

109

 

 

 

109

 

Other non-current liabilities

 

 

3,574

 

 

 

3,546

 

Total liabilities

 

 

351,147

 

 

 

362,483

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred shares ($0.0001 par value; 20,000,000 shares authorized; 0 shares issued and outstanding)

 

 

 

 

 

 

Ordinary shares ($0.0001 par value; 200,000,000 shares authorized; 28,070,251 and 27,907,077 shares outstanding, respectively; 32,507,690 and 32,344,516 shares issued, respectively)

 

 

3

 

 

 

3

 

Additional paid in capital

 

 

404,046

 

 

 

399,311

 

Treasury shares at cost (4,437,439 shares)

 

 

(91,578

)

 

 

(91,578

)

Retained earnings

 

 

118,591

 

 

 

103,953

 

Total shareholders’ equity

 

 

431,062

 

 

 

411,689

 

Total liabilities and shareholders’ equity

 

$

782,209

 

 

$

774,172

 

 

See accompanying notes.

1


ICHOR HOLDINGS, LTD.

Consolidated Statements of Operations

(dollars in thousands, except per share amounts)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 26,

2021

 

 

March 27,

2020

 

Net sales

 

$

264,566

 

 

$

220,028

 

Cost of sales

 

 

225,054

 

 

 

191,254

 

Gross profit

 

 

39,512

 

 

 

28,774

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

3,515

 

 

 

3,322

 

Selling, general, and administrative

 

 

14,349

 

 

 

16,618

 

Amortization of intangible assets

 

 

3,391

 

 

 

3,334

 

Total operating expenses

 

 

21,255

 

 

 

23,274

 

Operating income

 

 

18,257

 

 

 

5,500

 

Interest expense

 

 

1,919

 

 

 

2,374

 

Other expense (income), net

 

 

185

 

 

 

(31

)

Income before income taxes

 

 

16,153

 

 

 

3,157

 

Income tax expense (benefit)

 

 

1,515

 

 

 

(242

)

Net income

 

$

14,638

 

 

$

3,399

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.52

 

 

$

0.15

 

Diluted

 

$

0.51

 

 

$

0.15

 

Shares used to compute net income per share:

 

 

 

 

 

 

 

 

Basic

 

 

28,004,248

 

 

 

22,737,163

 

Diluted

 

 

28,729,112

 

 

 

23,181,127

 

See accompanying notes.

2


ICHOR HOLDINGS, LTD.

Consolidated Statements of Shareholders’ Equity

(dollars in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Treasury

 

 

 

 

 

 

Total

 

For the three months ending March 26, 2021

 

Ordinary Shares

 

 

Paid-In

 

 

Shares

 

 

Retained

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

Equity

 

Balance at December 25, 2020

 

 

27,907,077

 

 

$

3

 

 

$

399,311

 

 

 

4,437,439

 

 

$

(91,578

)

 

$

103,953

 

 

$

411,689

 

Ordinary shares issued from exercise of stock options

 

 

105,600

 

 

 

 

 

 

2,381

 

 

 

 

 

 

 

 

 

 

 

 

2,381

 

Ordinary shares issued from vesting of restricted share units

 

 

30,423

 

 

 

 

 

 

(667

)

 

 

 

 

 

 

 

 

 

 

 

(667

)

Ordinary shares issued from employee share purchase plan

 

 

27,151

 

 

 

 

 

 

606

 

 

 

 

 

 

 

 

 

 

 

 

606

 

Share-based compensation expense

 

 

 

 

 

 

 

 

2,415

 

 

 

 

 

 

 

 

 

 

 

 

2,415

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,638

 

 

 

14,638

 

Balance at March 26, 2021

 

 

28,070,251

 

 

$

3

 

 

$

404,046

 

 

 

4,437,439

 

 

$

(91,578

)

 

$

118,591

 

 

$

431,062

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Treasury

 

 

 

 

 

 

Total

 

For the three months ending March 27, 2020

 

Ordinary Shares

 

 

Paid-In

 

 

Shares

 

 

Retained

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

Equity

 

Balance at December 27, 2019

 

 

22,618,708

 

 

$

2

 

 

$

242,318

 

 

 

4,437,439

 

 

$

(91,578

)

 

$

70,674

 

 

$

221,416

 

Ordinary shares issued from exercise of stock options

 

 

113,539

 

 

 

 

 

 

2,483

 

 

 

 

 

 

 

 

 

 

 

 

2,483

 

Ordinary shares issued from vesting of restricted share units

 

 

57,912

 

 

 

 

 

 

(993

)

 

 

 

 

 

 

 

 

 

 

 

(993

)

Ordinary shares issued from employee share purchase plan

 

 

16,520

 

 

 

 

 

 

350

 

 

 

 

 

 

 

 

 

 

 

 

350

 

Share-based compensation expense

 

 

 

 

 

 

 

 

2,865

 

 

 

 

 

 

 

 

 

 

 

 

2,865

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,399

 

 

 

3,399

 

Balance at March 27, 2020

 

 

22,806,679

 

 

$

2

 

 

$

247,023

 

 

 

4,437,439

 

 

$

(91,578

)

 

$

74,073

 

 

$

229,520

 

 

See accompanying notes.

3


ICHOR HOLDINGS, LTD.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 26,

2021

 

 

March 27,

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

14,638

 

 

$

3,399

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,657

 

 

 

5,737

 

Share-based compensation

 

 

2,415

 

 

 

2,865

 

Deferred income taxes

 

 

512

 

 

 

722

 

Amortization of debt issuance costs

 

 

242

 

 

 

243

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(7,697

)

 

 

(2,724

)

Inventories

 

 

(9,306

)

 

 

(16,684

)

Prepaid expenses and other assets

 

 

512

 

 

 

(868

)

Accounts payable

 

 

22,101

 

 

 

(12,380

)

Accrued liabilities

 

 

(3,467

)

 

 

(568

)

Other liabilities

 

 

41

 

 

 

(778

)

Net cash provided by (used in) operating activities

 

 

25,648

 

 

 

(21,036

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(5,400

)

 

 

(2,470

)

Net cash used in investing activities

 

 

(5,400

)

 

 

(2,470

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Issuance of ordinary shares under share-based compensation plans

 

 

2,654

 

 

 

2,658

 

Employees' taxes paid upon vesting of restricted share units

 

 

(667

)

 

 

(993

)

Borrowings on revolving credit facility

 

 

 

 

 

5,000

 

Repayments on revolving credit facility

 

 

(30,000

)

 

 

 

Repayments on term loan

 

 

(2,188

)

 

 

(2,188

)

Net cash provided by (used in) financing activities

 

 

(30,201

)

 

 

4,477

 

Net decrease in cash

 

 

(9,953

)

 

 

(19,029

)

Cash at beginning of period

 

 

252,899

 

 

 

60,612

 

Cash at end of period

 

$

242,946

 

 

$

41,583

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

1,842

 

 

$

2,136

 

Cash paid during the period for taxes, net of refunds

 

$

667

 

 

$

34

 

Supplemental disclosures of non-cash activities:

 

 

 

 

 

 

 

 

Capital expenditures included in accounts payable

 

$

2,273

 

 

$

652

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

$

364

 

 

$

328

 

See accompanying notes.

 

 

4


 

 

ICHOR HOLDINGS, LTD.

Notes to Consolidated Financial Statements

(dollar figures in tables in thousands, except per share amounts)

(unaudited)

Note 1 – Basis of Presentation and Selected Significant Accounting Policies

Basis of Presentation

These consolidated unaudited financial statements have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”). All intercompany balances and transactions have been eliminated upon consolidation. All dollar figures presented in tables in the notes to consolidated financial statements are in thousands, except per share amounts. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted as permitted by the SEC's rules and regulations for interim reporting. These consolidated financial statements should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10‑K for the year ended December 25, 2020.

Year End

We use a 52- or 53-week fiscal year ending on the last Friday in December. The three months ended March 26, 2021 and March 27, 2020 were both 13 weeks. References to the first quarter of 2021 and 2020 refer to the three-month periods then ended. References to fiscal year 2021 and 2020 refer to our fiscal years ending December 31, 2021 and December 25, 2020, respectively.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods presented. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results could differ from the estimates made by management. Significant estimates include inventory valuation, uncertain tax positions, fair value assigned to stock options granted, and impairment analysis for both definite‑lived intangible assets and goodwill.

Revenue Recognition

We recognize revenue when control of promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. This amount is recorded as net sales in our consolidated statements of operations.

Transaction price – In most of our contracts, prices are generally determined by a customer-issued purchase order and generally remain fixed over the duration of the contract. Certain contracts contain variable consideration, including early-payment discounts and rebates. When a contract includes variable consideration, we evaluate the estimate of the variable consideration to determine whether the estimate needs to be constrained; therefore, we include the variable consideration in the transaction price only to the extent that it is probable that a significant reversal will not occur. Variable consideration estimates are updated at each reporting date. Historically, we have not incurred significant costs to obtain a contract. All amounts billed to a customer relating to shipping and handling are classified as net sales, while all costs incurred by us for shipping and handling are classified as cost of sales.

Performance obligations – Substantially all of our performance obligations pertain to promised goods (“products”), which are primarily comprised of fluid delivery subsystems, weldments, and other components. Most of our contracts contain a single performance obligation and are generally completed within twelve months. Product sales are recognized at a point-in-time, generally upon delivery, as such term is defined within the contract, as that is when control of the promised good has transferred. Products are covered by a standard assurance warranty, generally extended for a period of one to two years depending on the customer, which promises that delivered products conform to contract specifications. As such, we account for such warranties under ASC 460, Guarantees, and not as a separate performance obligation.

Contract balances – Accounts receivable represents our unconditional right to receive consideration from our customers. Accounts receivable are carried at invoice price less an estimate for doubtful accounts and estimated payment discounts. Payment terms vary by customer but are generally due within 15‑60 days. Historically, we have not incurred significant payment issues with our customers. We had no significant contract assets or liabilities on our consolidated balance sheets in any of the periods presented.

5


 

Accounting Pronouncements Recently Adopted

In December 2019, the FASB issued ASU 2019‑12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU include removing exceptions to incremental intraperiod tax allocation of losses and gains from different financial statement components, exceptions to the method of recognizing income taxes on interim period losses, and exceptions to deferred tax liability recognition related to foreign subsidiary investments. In addition, the ASU requires that entities recognize franchise tax based on an incremental method and requires an entity to evaluate the accounting for step-ups in the tax basis of goodwill as inside or outside of a business combination. We adopted the standard on the first day of 2021, and it did not have a significant impact on our financial statements.

Note 2 – Inventories

Inventories consist of the following:

 

 

 

March 26,

2021

 

 

December 25,

2020

 

Raw materials

 

$

91,470

 

 

$

88,015

 

Work in process

 

 

43,869

 

 

 

38,184

 

Finished goods

 

 

20,932

 

 

 

21,299

 

Excess and obsolete adjustment

 

 

(12,209

)

 

 

(12,742

)

Total inventories

 

$

144,062

 

 

$

134,756

 

 

Note 3 – Property and Equipment and Other Noncurrent Assets

Property and equipment consist of the following:

 

 

 

March 26,

2021

 

 

December 25,

2020

 

Machinery

 

$

36,828

 

 

$

37,196

 

Leasehold improvements

 

 

29,612

 

 

 

29,616

 

Computer software, hardware, and equipment

 

 

6,531

 

 

 

6,501

 

Office furniture, fixtures and equipment

 

 

1,166

 

 

 

1,166

 

Vehicles

 

 

90

 

 

 

75

 

Construction-in-process

 

 

12,878

 

 

 

5,483

 

 

 

 

87,105

 

 

 

80,037

 

Less accumulated depreciation

 

 

(40,256

)

 

 

(38,226

)

Total property and equipment, net

 

$

46,849

 

 

$

41,811

 

 

Depreciation expense was $2.3 million and $2.4 million for the first quarter of 2021 and 2020, respectively.

Cloud Computing Implementation Costs

We capitalize implementation costs associated with hosting arrangement that are service contracts. These costs are recorded to prepaid expenses or other noncurrent assets. To-date, these costs are those incurred to implement a new company-wide ERP system.

The following table summarizes capitalized cloud computing implementation costs:

 

Capitalized cloud computing implementation costs as of December 25, 2020

 

$

4,366

 

Costs capitalized during the period

 

 

325

 

Capitalized costs amortized during the period

 

 

 

Capitalized cloud computing implementation costs as of March 26, 2021

 

$

4,691

 

 

6


 

 

Note 4 – Intangible Assets

Definite‑lived intangible assets consist of the following:

 

 

 

March 26, 2021

 

 

Gross value

 

 

Accumulated

amortization

 

 

Accumulated

impairment

charges

 

 

Carrying

amount

 

 

Weighted

average

useful life

Trademarks

 

$

9,690

 

 

$

(8,959

)

 

$

 

 

$

731

 

 

10.0 years

Customer relationships

 

 

84,169

 

 

 

(56,824

)

 

 

 

 

 

27,345

 

 

7.7 years

Developed technology

 

 

11,047

 

 

 

(2,669

)

 

 

 

 

 

8,378

 

 

10.0 years

Total intangible assets

 

$

104,906

 

 

$

(68,452

)

 

$

 

 

$

36,454

 

 

 

 

 

 

December 25, 2020

 

 

Gross value

 

 

Accumulated

amortization

 

 

Accumulated

impairment

charges

 

 

Carrying

amount

 

 

Weighted

average

useful life

Trademarks

 

$

9,690

 

 

$

(8,717

)

 

$

 

 

$

973

 

 

10.0 years

Customer relationships

 

 

84,169

 

 

 

(53,946

)

 

 

 

 

 

30,223

 

 

7.8 years

Developed technology

 

 

11,047

 

 

 

(2,398

)

 

 

 

 

 

8,649

 

 

10.0 years

Total intangible assets

 

$

104,906

 

 

$

(65,061

)

 

$

 

 

$

39,845

 

 

 

 

 

Note 5 – Leases

Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. For purposes of calculating operating lease ROU assets and operating lease liabilities, we use the non-cancellable lease term plus options to extend that we are reasonably certain to take. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Our leases generally do not provide an implicit rate. As such, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

We lease facilities under various non-cancellable operating leases expiring through 2026. In addition to base rental payments, we are generally responsible for our proportionate share of operating expenses, including facility maintenance, insurance, and property taxes. As these amounts are variable, they are not included in lease liabilities. As of March 26, 2021, we had 1 operating lease executed for which the rental period had not yet commenced.

The components of lease expense are as follows:

 

 

 

Three Months Ended

 

 

 

March 26,

2021

 

 

March 27,

2020

 

Operating lease cost

 

$

1,381

 

 

$

1,320

 

 

Supplemental cash flow information related to leases is as follows:

 

 

 

Three Months Ended

 

 

 

March 26,

2021

 

 

March 27,

2020

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

1,376

 

 

$

1,284

 

 

Supplemental balance sheet information related to leases is as follows:

 

 

 

March 26,

2021

 

 

March 27,

2020

 

Weighted-average remaining lease term of operating leases

 

2.2 years

 

 

2.9 years

 

Weighted-average discount rate of operating leases

 

4.4%

 

 

4.5%

 

 

7


 

 

Future minimum lease payments under non-cancelable leases as of March 26, 2021 are as follows:

 

2021, remaining

 

$

3,786

 

2022

 

 

4,370

 

2023

 

 

1,395

 

2024

 

 

448

 

2025

 

 

225

 

Thereafter

 

 

49

 

Total future minimum lease payments

 

 

10,273

 

Less imputed interest

 

 

(574

)

Total lease liabilities

 

$

9,699

 

 

Note 6 – Income Taxes

Income tax information for the periods reported are as follows:

 

 

 

Three Months Ended

 

 

 

March 26,

2021

 

 

March 27,

2020

 

Income tax expense (benefit)

 

$

1,515

 

 

$

(242

)

Income before income taxes

 

$

16,153

 

 

$

3,157

 

Effective income tax rate

 

 

9.4

%

 

 

-7.7

%

 

Our effective tax rate for the first quarter of 2021 differs from the statutory rate due to taxes on foreign income that differ from the U.S. tax rate, including a tax holiday in Singapore, and the impact of share-based compensation activity during the quarter.

Our effective tax rate for first quarter of 2020 differs from the statutory rate due to taxes on foreign income that differ from the U.S. tax rate and the release of the certain tax reserves related to statute of limitation expirations and settlements, excess tax benefits from share-based compensation and the impact of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act.

The ending balance for the unrecognized tax benefits for uncertain tax positions was approximately $3.0 million at March 26, 2021. The related interest and penalties were insignificant. The uncertain tax positions that are reasonably possible to decrease in the next twelve months are insignificant.

As of March 26, 2021, we were not under examination by tax authorities.

Note 7 – Employee Benefit Programs

401(k) Plan

We sponsor a 401(k) plan available to employees of our U.S.‑based subsidiaries. Participants may make salary deferral contributions not to exceed 50% of a participant’s annual compensation or the maximum amount otherwise allowed by law. Eligible employees receive a discretionary matching contribution equal to 50% of a participant’s deferral, up to an annual maximum of 4% of a participant’s annual compensation. Matching contributions were $0.6 million and $0.5 million for the first quarter of 2021 and 2020, respectively.

Note 8 – Long-Term Debt

Long‑term debt consists of the following:

 

 

 

March 26,

2021

 

 

December 25,

2020

 

Term loan

 

$

150,937

 

 

$

153,125

 

Revolving credit facility

 

 

19,162

 

 

 

49,162

 

Total principal amount of long-term debt

 

 

170,099

 

 

 

202,287

 

Less unamortized debt issuance costs

 

 

(1,773

)

 

 

(2,015

)

Total long-term debt, net

 

 

168,326

 

 

 

200,272

 

Less current portion

 

 

(8,750

)

 

 

(8,750

)

Total long-term debt, less current portion, net

 

$

159,576

 

 

$

191,522

 

8


 

 

 

On February 15, 2018, we entered into an amended and restated credit agreement, which includes a $175.0 million term loan and a $125.0 million revolving credit facility. 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 modification. Term loan principal payments of $2.2 million are due on a quarterly basis. The credit facilities mature on February 15, 2023.

Interest is charged at either the Base Rate or the Eurodollar rate (as such terms are defined in the credit agreement) at our option, plus an applicable margin. The Base Rate is equal to the higher of i) the Prime Rate, ii) the Federal Funds Rate plus 0.5%, or iii) the Eurodollar Rate plus 1.00%. The Eurodollar rate is equal to LIBOR, subject to a 1.00% floor for the term loan. The applicable margin on Base Rate and Eurodollar Rate loans is 0.75‑1.50% and 1.75‑2.50% per annum, respectively, depending on our leverage ratio. We are also charged a commitment fee of 0.20%-0.35% on the unused portion of our revolving credit facility. Base Rate interest payments and commitment fees are due quarterly. Eurodollar interest payments are due on the last day of the applicable interest period. At March 26, 2021, the term loan and revolving credit facility bore interest at the Eurodollar rate option of 3.25% and 2.50%, respectively.

Note 9 – Share‑Based Compensation

The 2016 Omnibus Incentive Plan (the “2016 Plan”) provides for grants of share‑based awards to employees, directors, and consultants. Awards may be in the form of stock options (“options”), tandem and non‑tandem stock appreciation rights, restricted share awards or restricted share units (“RSUs”), performance awards, and other share‑based awards. Forfeited or expired awards are returned to the incentive plan pool for future grants. Awards generally vest over four years, 25% on the first anniversary of the date of grant and quarterly thereafter over the remaining 3 years. Upon vesting of RSUs, employees may elect to have shares withheld to cover statutory minimum withholding taxes. Shares withheld are not reflected as an issuance of ordinary shares within our consolidated statements of shareholders’ equity, as the shares were never issued, and the associated tax payments are reflected as financing activities within our consolidated statements of cash flows.

Share‑based compensation expense across all plans for options, RSUs, and employee share purchase rights was $2.4 million and $2.9 million for the first quarter of 2021 and 2020, respectively.

Stock Options

The following table summarizes option activity:

 

 

 

Number of Stock Options

 

 

 

 

 

 

 

 

 

 

 

 

 

Time

vesting

 

 

Performance

vesting

 

 

Weighted average exercise price per share

 

 

Weighted average remaining contractual term

 

Aggregate intrinsic value

(in thousands)

 

Outstanding, December 25, 2020

 

 

1,325,826

 

 

 

65,908

 

 

$

22.22

 

 

 

 

 

 

 

Granted

 

 

 

 

 

0

 

 

$

 

 

 

 

 

 

 

Exercised

 

 

(105,600

)

 

 

0

 

 

$

22.55

 

 

 

 

 

 

 

Forfeited or expired

 

 

(22,958

)

 

 

0

 

 

$

19.24

 

 

 

 

 

 

 

Outstanding, March 26, 2021

 

 

1,197,268

 

 

 

65,908

 

 

$

22.25

 

 

4.4 years

 

$

37,097

 

Exercisable, March 26, 2021

 

 

579,671

 

 

 

65,908

 

 

$

21.00

 

 

3.6 years

 

$

19,770

 

 

Restricted Share Units

The following table summarizes RSU activity:

 

 

 

Number of Restricted Share Units

 

 

 

 

 

 

 

Time

vesting

 

 

Performance

vesting

 

 

Weighted average grant date fair value per share

 

Unvested, December 25, 2020

 

 

564,626

 

 

 

 

 

$

24.09

 

Granted

 

 

18,227

 

 

 

 

 

$

35.39

 

Vested

 

 

(47,542

)

 

 

 

 

$

28.45

 

Forfeited

 

 

(11,726

)

 

 

 

 

$

22.07

 

Unvested, March 26, 2021

 

 

523,585

 

 

 

 

 

$

24.13

 

 

9


 

 

Employee Share Purchase Plan

The 2017 Employee Stock Purchase Plan (the “2017 ESPP”) grants employees the ability 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 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.

During the first quarter of 2021, 27,151 ordinary shares were purchased by eligible employees under the 2017 ESPP. As of March 26, 2021, approximately 2.4 million ordinary shares remain available for purchase under the 2017 ESPP.

Note 10 – Segment Information

Our Chief Operating Decision Maker, the Chief Executive Officer, reviews our results of operations on a consolidated level and executive staff is structured by function rather than by product category. Therefore, we operate in 1 operating segment. Key resources, decisions, and assessment of performance are also analyzed on a company‑wide level.

Foreign operations are conducted primarily through our wholly owned subsidiaries in Singapore and Malaysia. Our 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:

 

 

 

Three Months Ended

 

 

 

March 26,

2021

 

 

March 27,

2020

 

United States of America

 

$

139,134

 

 

$

120,841

 

Singapore

 

 

86,324

 

 

 

73,209

 

Europe

 

 

17,330

 

 

 

14,959

 

Other

 

 

21,778

 

 

 

11,019

 

Total net sales

 

$

264,566

 

 

$

220,028

 

 

Foreign long-lived assets, exclusive of deferred tax assets, were $34.8 million and $31.5 million at March 26, 2021 and December 25, 2020, respectively.

Note 11 – Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share and a reconciliation of the numerator and denominator used in the calculation:

 

 

Three Months Ended

 

 

March 26,

2021

 

 

March 27,

2020

 

Numerator:

 

 

 

 

 

 

 

Net income

$

14,638

 

 

$

3,399

 

Denominator:

 

 

 

 

 

 

 

Basic weighted average ordinary shares outstanding

 

28,004,248

 

 

 

22,737,163

 

Dilutive effect of options

 

449,656

 

 

 

322,469

 

Dilutive effect of RSUs

 

269,002

 

 

 

119,960

 

Dilutive effect of ESPP

 

6,206

 

 

 

1,535

 

Diluted weighted average ordinary shares outstanding

 

28,729,112

 

 

 

23,181,127

 

Earnings per share:

 

 

 

 

 

 

 

Net income:

 

 

 

 

 

 

 

Basic

$

0.52

 

 

$

0.15

 

Diluted

$

0.51

 

 

$

0.15

 

 

10


 

A combined total of approximately 75,000 and 720,000 potentially dilutive options and RSUs were excluded from the calculation of net income per share for the first quarter of 2021 and 2020, respectively, because including them would have been antidilutive under the treasury stock method.

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 unaudited 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 and components for semiconductor capital equipment. Our product offerings include gas and chemical delivery systems and subsystems, collectively known as fluid delivery systems and 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 systems and subsystems precisely blend and dispense the reactive liquid chemistries used in semiconductor manufacturing processes such as chemical-mechanical planarization, electroplating, and cleaning. We also manufacture precision machined components, weldments, and proprietary products for use in fluid delivery systems 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 processes. Any malfunction or material degradation in fluid delivery reduces yields and increases the likelihood of manufacturing defects in these processes. Most OEMs outsource all or a portion of 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-added processes. We believe that this outsourcing trend has enabled OEMs to reduce their costs and development time, as well as provide growth opportunities for specialized subsystems suppliers like us.

We have a global footprint with production facilities in California, Minnesota, Oregon, Texas, Singapore, Malaysia, the United Kingdom, Korea, and Mexico.

The following summarizes key financial information for the periods indicated:

 

 

 

Three Months Ended

 

 

 

March 26,

2021

 

 

March 27,

2020

 

 

 

(dollars in thousands)

 

Net sales

 

$

264,566

 

 

$

220,028

 

Gross profit

 

$

39,512

 

 

$

28,774

 

Gross margin

 

 

14.9

%

 

 

13.1

%

Operating expenses

 

$

21,255

 

 

$

23,274

 

Operating income

 

$

18,257

 

 

$

5,500

 

U.S. GAAP net income

 

$

14,638

 

 

$

3,399

 

Non-GAAP net income (1)

 

$

21,725

 

 

$

12,058

 

U.S. GAAP diluted EPS

 

$

0.51

 

 

$

0.15

 

Non-GAAP diluted EPS (1)

 

$

0.76

 

 

$

0.52

 

 

 

(1)

Please see “Non‑GAAP Results” within Item 2 of this report for a reconciliation of U.S. GAAP net income to Non‑GAAP net income.

11


 

COVID-19 Pandemic and Market Conditions Update

The COVID‑19 pandemic and related economic repercussions have created, and are expected to continue to create, significant volatility, uncertainty, and turmoil in our industry. While our facilities are currently not subject to any site-wide government shutdowns, “social distancing” guidelines are resulting, and will continue to result in, reduced factory output. In addition, an increase in direct costs within our factories associated with employee personal protective equipment (“PPE”), facility cleaning and layout changes, together with increases in logistics costs and employee labor costs, as well as other operating inefficiencies have resulted in, and may continue to result in, lower revenues and operating margins. The extent and duration of these impacts cannot be specifically quantified given the dynamic nature and breadth of the pandemic’s impact on our operations and that of our customers and suppliers.

Results of 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

 

 

 

March 26,

2021

 

 

March 27,

2020

 

 

 

(in thousands)

 

Consolidated Statements of Operations Data:

 

 

 

 

 

 

 

 

Net sales

 

$

264,566

 

 

$

220,028

 

Cost of sales

 

 

225,054

 

 

 

191,254

 

Gross profit

 

 

39,512

 

 

 

28,774

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

3,515

 

 

 

3,322

 

Selling, general, and administrative

 

 

14,349

 

 

 

16,618

 

Amortization of intangible assets

 

 

3,391

 

 

 

3,334

 

Total operating expenses

 

 

21,255

 

 

 

23,274

 

Operating income

 

 

18,257

 

 

 

5,500

 

Interest expense

 

 

1,919

 

 

 

2,374

 

Other expense (income), net

 

 

185

 

 

 

(31

)

Income before income taxes

 

 

16,153

 

 

 

3,157

 

Income tax expense (benefit)

 

 

1,515

 

 

 

(242

)

Net income

 

$

14,638

 

 

$

3,399

 

 

The following table sets forth our unaudited results of operations as a percentage of our total sales for the periods presented.

 

 

 

Three Months Ended

 

 

 

March 26,

2021

 

 

March 27,

2020

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Operations Data:

 

 

 

 

 

 

 

 

Net sales

 

 

100.0

 

 

 

100.0

 

Cost of sales

 

 

85.1

 

 

 

86.9

 

Gross profit

 

 

14.9

 

 

 

13.1

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

1.3

 

 

 

1.5

 

Selling, general, and administrative

 

 

5.4

 

 

 

7.6

 

Amortization of intangible assets

 

 

1.3

 

 

 

1.5

 

Total operating expenses

 

 

8.0

 

 

 

10.6

 

Operating income

 

 

6.9

 

 

 

2.5

 

Interest expense

 

 

0.7

 

 

 

1.1

 

Other expense (income), net

 

 

0.1

 

 

 

0.0

 

Income before income taxes

 

 

6.1

 

 

 

1.4

 

Income tax expense (benefit)

 

 

0.6

 

 

 

(0.1

)

Net income

 

 

5.5

 

 

 

1.5

 

12


 

 

Comparison of the First Quarter of 2021 and the First Quarter of 2020

Net Sales

 

 

 

Three Months Ended

 

 

Change

 

 

 

March 26,

2021

 

 

March 27,

2020

 

 

Amount

 

 

%

 

 

 

(dollars in thousands)

 

Net sales

 

$

264,566

 

 

$

220,028

 

 

$

44,538

 

 

 

20.2

%

The increase in net sales from the first quarter of 2020 to the first quarter of 2021 was primarily due to increased demand from our customers as a result of growth in the global wafer fabrication equipment market, as well as share-gains at our largest customers. On a geographic basis, sales in the U.S. increased by $18.3 million to $139.1 million, and foreign sales increased by $26.2 million to $125.4 million.

Cost of Sales and Gross Profit

 

 

 

Three Months Ended

 

 

Change

 

 

 

March 26,

2021

 

 

March 27,

2020

 

 

Amount

 

 

%

 

 

 

(dollars in thousands)

 

Cost of sales

 

$

225,054

 

 

$

191,254

 

 

$

33,800

 

 

 

17.7

%

Gross profit

 

$

39,512

 

 

$

28,774

 

 

$

10,738

 

 

 

37.3

%

Gross margin

 

 

14.9

%

 

 

13.1

%

 

 

 

 

 

+ 180 bps

 

The increase in cost of sales and gross profit from the first quarter of 2020 to the first quarter of 2021 was primarily due to increased sales volume.

The increase in our gross margin from the first quarter of 2020 to the first quarter of 2021 was primarily due to increased factory utilization, as a result of higher overall volume, and product mix, partially offset by $2.5 million in costs recorded in connection with the planned closure of our Union City, California facility. These costs, which relate to inventory write-down and severance costs, resulted in an approximate 95 basis point reduction in our gross margin for the first quarter of 2021. The facility ceased operations shortly after the close of our first quarter.

Research and Development

 

 

 

Three Months Ended

 

 

Change

 

 

 

March 26,

2021

 

 

March 27,

2020

 

 

Amount

 

 

%

 

 

 

(dollars in thousands)

 

Research and development

 

$

3,515

 

 

$

3,322

 

 

$

193

 

 

 

5.8

%

The increase in research and development expenses from the first quarter of 2020 to the first quarter of 2021 was primarily due to increased employee-related expense, as we expand our engineering team, and materials associated with our new product development programs.

Selling, General, and Administrative

 

 

 

Three Months Ended

 

 

Change

 

 

 

March 26,

2021

 

 

March 27,

2020

 

 

Amount

 

 

%

 

 

 

(dollars in thousands)

 

Selling, general, and administrative

 

$

14,349

 

 

$

16,618

 

 

$

(2,269

)

 

 

-13.7

%

The decrease in selling, general, and administrative expense from the first quarter of 2020 to the first quarter of 2021 was primarily due (i) $1.8 million in executive transition costs associated with the transition of our former CEO to Executive Chairman in the first quarter of 2020 that did not repeat in the first quarter of 2021 and (ii) $0.6 million in decreased share-based compensation expense as a result of non-recurring charges in the first quarter of 2020 that did not repeat in the first quarter of 2021.

13


 

Amortization of Intangible Assets

 

 

 

Three Months Ended

 

 

Change

 

 

 

March 26,

2021

 

 

March 27,

2020

 

 

Amount

 

 

%

 

 

 

(dollars in thousands)

 

Amortization of intangibles assets

 

$

3,391

 

 

$

3,334

 

 

$

57

 

 

 

1.7

%

The increase in amortization expense from the first quarter of 2020 to the first quarter of 2021 was primarily due to incremental amortization expense from the acquisition of a customer relationship intangible asset in December 2020 in connection with our acquisition of a precision machining operation in Nogales, Mexico.

Interest Expense

 

 

 

Three Months Ended

 

 

Change

 

 

 

March 26,

2021

 

 

March 27,

2020

 

 

Amount

 

 

%

 

 

 

(dollars in thousands)

 

Interest expense

 

$

1,919

 

 

$

2,374

 

 

$

(455

)

 

 

-19.2

%

The decrease in interest expense from the first quarter of 2020 to the first quarter of 2021 was primarily due to a 114 basis point decrease in our weighted average interest rate, from 4.44% to 3.30%, partially offset by a $7.5 million increase in our average amount borrowed during the first quarter of 2021 compared to the first quarter of 2020.

Other Expense (Income), Net

 

 

 

Three Months Ended

 

 

Change

 

 

March 26,

2021

 

 

March 27,

2020

 

 

Amount

 

 

%

 

 

(dollars in thousands)

Other expense, net

 

$

185

 

 

$

(31

)

 

$

216

 

 

n/m

The change in other expense, net from the first quarter of 2020 to the first quarter of 2021 was primarily due to currency exchange rate changes during the quarter as a result of transactions denominated in the local currencies of our foreign operations. These local currencies consist primarily of the Singapore dollar, Malaysian ringgit, and euro.

Income Tax Expense (Benefit)

 

 

 

Three Months Ended

 

 

Change

 

 

March 26,

2021

 

 

March 27,

2020

 

 

Amount

 

 

%

 

 

(dollars in thousands)

Income tax expense (benefit)

 

$

1,515

 

 

$

(242

)

 

$

1,757

 

 

n/m

The increase in income tax expense from the first quarter of 2020 to the first quarter of 2021 was primarily due to increased taxable income in the U.S. in 2021, as well as a decrease in the release of certain tax reserves related to statute of limitations expirations or settlements compared to the first quarter of 2020.

14


 

Non‑GAAP Results

Management uses non-GAAP metrics to evaluate our operating and financial results. We believe the presentation of non-GAAP results is useful to investors for analyzing business trends and comparing performance to prior periods, along with enhancing investors’ ability to view our results from management’s perspective. Non-GAAP net income is defined as: net income excluding (1) amortization of intangible assets, share-based compensation expense, and non-recurring expenses, including contract settlement losses and divestiture and facility shutdown related charges; and (2) the tax impacts associated with our non-GAAP adjustments, as well as non-recurring discrete tax items. Non-GAAP diluted EPS is defined as non-GAAP net income divided by weighted average diluted ordinary shares outstanding during the period.

The following table presents our unaudited non‑GAAP net income and a reconciliation from net income, the most comparable GAAP measure, for the periods indicated:

 

 

 

Three Months Ended

 

 

 

March 26,

2021

 

 

March 27,

2020

 

 

 

(dollars in thousands, except per share amounts)

 

Non-GAAP Data:

 

 

 

 

 

 

 

 

U.S. GAAP net income

 

$

14,638

 

 

$

3,399

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

 

Amortization of intangible assets

 

 

3,391

 

 

 

3,334

 

Share-based compensation

 

 

2,415

 

 

 

2,865

 

Other non-recurring expense, net (1)

 

 

278

 

 

 

2,690

 

Contract settlement loss (2)

 

 

 

 

 

1,386

 

Facility shutdown costs (3)

 

 

2,510

 

 

 

 

Fair value adjustment to inventory from acquisitions (4)

 

 

211

 

 

 

 

Tax adjustments related to non-GAAP adjustments (5)

 

 

(1,718

)

 

 

(1,616

)

Non-GAAP net income

 

$

21,725

 

 

$

12,058

 

U.S. GAAP diluted EPS

 

$

0.51

 

 

$

0.15

 

Non-GAAP diluted EPS

 

$

0.76

 

 

$

0.52

 

Shares used to compute diluted EPS

 

 

28,729,112

 

 

 

23,181,127

 

 

 

(1)

Included in this amount for the first quarter of 2021 are (i) non-capitalized costs incurred in connection with our implementation of a new ERP system and a Sarbanes-Oxley (“SOX”) compliance program and (ii) a non-recurring settlement charge.

Included in this amount for the first quarter of 2020 are (i) a $1.8 million bonus payment to our former CEO in connection with his transition to executive chairman, (ii) acquisition-related expenses, comprised primarily of expense associated with a two-year retention agreement between the Company and key management personnel of IAN (the “IAN retention agreement”), which we acquired in April 2018, and (iii) non-capitalizable costs incurred in connection with our implementation of a new ERP system and a SOX compliance program.

 

(2)

During the first quarter of 2020, we reached a mutual settlement with the counterparty of a contract dispute and, accordingly, recorded a $1.4 million contract settlement loss to cost of sales.

 

(3)

Included in this amount for the first quarter of 2021 are write-off costs associated with inventories determined during the quarter to be obsolete and severance costs associated with affected employees of $2.2 million and $0.2 million, respectively. These charges relate to the planned closure of our manufacturing facility in Union City, California, which we ceased operations in shortly after the close of our 2021 first quarter.

 

(4)

As part of our purchase price allocation for our acquisition of a precision machining operation in Mexico in December 2020, we recorded acquired-inventory at fair value, resulting in a fair value step-up of $0.2 million. This was subsequently released to cost of sales in the first quarter of 2021 as acquired-inventory was sold.

 

(5)

Adjusts U.S. GAAP income tax expense (benefit) for impact of our non-GAAP adjustments, as defined, including the impacts of excluding share-based compensation, amortization of intangible assets, and other non-recurring expenses. This adjustment also excludes the impact of non-recurring discrete tax items.

Non-GAAP results have limitations as an analytical tool, and you should not consider them in isolation or as a substitute for our results reported under GAAP. Other companies may calculate non-GAAP results differently or may use other measures to evaluate their performance, both of which could reduce the usefulness of our non-GAAP results as a tool for comparison.

15


 

Because of these limitations, you should consider non-GAAP results alongside other financial performance measures and results presented in accordance with GAAP. In addition, in evaluating non-GAAP results, you should be aware that in the future we will incur expenses such as those that are the subject of adjustments in deriving non-GAAP results and you should not infer from our presentation of non-GAAP results that our future results will not be affected by these expenses or any unusual or non-recurring items.

Liquidity and Capital Resources

We ended the first quarter of 2021 with cash of $242.9 million, a decrease of $10.0 million from the end of the prior quarter. The decrease from the end of the prior quarter was primarily due to payments on long-term debt of $32.2 million, of which $30.0 million was a paydown on our revolving credit facility, and capital expenditures of $5.4 million, partially offset by cash provided by operating activities of $25.6 million and net proceeds from the issuance of shares under our share-based compensation plans of $2.0 million.

We believe that our cash, the amounts available under our revolving credit facility, and our cash flows from operations will be sufficient to meet our anticipated cash needs for at least the next 12 months.

Cash Flow Analysis

The following table sets forth a summary of operating, investing, and financing activities for the periods presented:

 

 

 

Year Ended

 

 

 

March 26,

2021

 

 

March 27,

2020

 

 

 

 

 

 

 

(in thousands)

 

Cash provided by (used in) operating activities

 

$

25,648

 

 

$

(21,036

)

Cash used in investing activities

 

 

(5,400

)

 

 

(2,470

)

Cash provided by (used in) financing activities

 

 

(30,201

)

 

 

4,477

 

Net decrease in cash

 

$

(9,953

)

 

$

(19,029

)

Operating Activities

Our cash provided by operating activities of $25.6 million for the first quarter of 2021 consisted of net income of $14.6 million, net non-cash charges of $8.8 million, and a decrease in our net operating assets and liabilities of $2.2 million. Net non-cash charges primarily consisted of depreciation and amortization of $5.7 million, share-based compensation of $2.4 million, and deferred taxes of $0.5 million. The increase in our net operating assets and liabilities was primarily due to an increase in accounts payable of $22.1 million, partially offset by increases in inventories and accounts receivable of $9.3 million and $7.7 million, respectively, and a decrease in accrued liabilities of $3.5 million.

Investing Activities

Our cash used in investing activities of $5.4 million for the first quarter of 2021 consists of capital expenditures.

Financing Activities

Our cash used in financing activities of $30.2 million for the first quarter of 2021 consists of payments on long-term debt of $32.2 million, of which $30.0 million was a paydown on our revolving credit facility, partially offset by net proceeds from the issuance of shares under our share-based compensation plans of $2.0 million.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.

The critical accounting policies requiring estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements 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 25, 2020 (our “Annual Report”).

16


 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE 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, euro, and South Korean won. 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 indebtedness of $170.1 million as of March 26, 2021, exclusive of $1.8 million in debt issuance costs, of which $8.8 million was due within 12 months. The outstanding amount of debt included elsewhere in this report is net of debt issuance costs.

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 our outstanding debt is based on LIBOR, the Prime Rate, or the Federal Funds Rate. A hypothetical 1% interest rate change on our outstanding debt would have resulted in a $0.4 million change to interest expense during the first quarter of 2021, or $1.7 million on an annualized basis.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 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 and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a‑15(e) and 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. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of March 26, 2021.

Limitations on Effectiveness of Controls and Procedures

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.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the three months ended March 26, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

17


 

PART II—OTHER INFORMATION

We are currently not a party to any material pending or threatened litigation.

ITEM 1A. RISK FACTORS

This quarterly report should be read in conjunction with the risk factors included in our 2020 Annual Report. There have been no material changes in our risk factors from the risk factors disclosed in that report. 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.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

 

 

 

Exhibit

Number

 

Description

 

 

 

31.1*

 

Certification of Principal Executive Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.

31.2*

 

Certification of Principal Financial Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.

32.1**

 

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.

32.2**

 

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.

101.INS*

 

Inline XBRL Instance Document

101.SCH*

 

Inline XBRL Taxonomy Extension Schema Document

101.CAL*

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

 

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

 

Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

*

Filed herewith.

**

Furnished herewith and not filed.

 

18


 

 

SIGNATURES

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: May 5, 2021

 

By:

/s/ Jeffrey S. Andreson

 

 

 

Jeffrey S. Andreson

 

 

 

Chief Executive Officer

(Principal Executive Officer)

 

 

 

 

Date: May 5, 2021

 

By:

/s/ Larry J. Sparks

 

 

 

Larry J. Sparks

 

 

 

Chief Financial Officer

(Principal Accounting and Financial Officer)

 

 

19