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ICHR Ichor

Participants
Claire McAdams IR
Tom Rohrs Chairman and CEO
Jeff Andreson President and CFO
Quinn Bolton Needham
Craig Ellis B. Riley FBR
Karl Ackerman Cowen
Mitch Steves RBC Capital Markets
Call transcript
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Operator

Good day, ladies and gentlemen, and welcome to the Ichor Systems Second Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Claire McAdams, Investor Relations for Ichor. Please go ahead.

Claire McAdams

Thank you, Serine. we you will today's telephonically be Ichor's shortly thank conference quarter and and website which afternoon. call, available after afternoon, for second joining XXXX on Good this conclude for replay

are number you materially many These this call, our statements forward-looking actual subject to beyond within statements our you contain of of meaning a that conference press and to are please release results As which as from of read and federal uncertainties, listen statements. could the both which recognize such risks and forward-looking earnings control securities to laws. cause differ

those These release, in the with include those those on subsequent uncertainties risks our SEC. in out and annual report and fiscal in described press described for Form filings our earnings XX-K spelled XXXX year

consider those in all and statements other risks forward-looking should light and You of uncertainties.

certain their providing our of measures be to measures earnings will GAAP release this and these contains press we non-GAAP a reconciliation financial measures. most conference financial call, financial Additionally, comparable non-GAAP during

On are further and growth and and the the strategy Tom second of outlook, and results, will begin for Financial will Chief Jeff quarter with third Chairman today our After Jeff will open Officer, line our Ichor's me President remarks, and guidance. Rohrs; the we our and Tom detail review results CEO, regarding prepared then provide with call initiatives, Andreson. quarter the questions.

Tom? over I'll to Rohrs. now turn the Tom call

Tom Rohrs

our welcome Claire you, call. to and conference Thank QX

in current Ichor operate continues industry downturn. and to strength the with profitability

X% of from where with quarter. midpoint above million, expected revenue up we at Second in first guidance about quarter came the the $XXX

along solid feel at guidance bottom. share significantly have per well that these business adjusting we and $X.XX revenue were still the at earnings bounce I as quarter midpoint conditions second weakened done the to we levels. of profitability demonstrating Our

entering balanced and the the second higher of run-rate sales the our and XXXX half resources cyclical our in increased half have expect between XXXX. of first lows we the We

make share progress strategies markets. to to continue we quarter, executing grow our our served our within the During on

Ichor Our uniquely stronger execution of first makes equipment process the second strategies to half a to in within market positioned compared the half these market share calendar XXXX. growth have

forward As our or the ASML. these achieve higher in an as to we incremental this well the will sequentially of level WFE market spending despite ongoing particularly grow in the in expect revenue uptick from equipment to in to trend revenues share look we wafer we quarter, We to gains, third fab memory. favorable our results as weakness believe sales

share in QX gains $X about and $XX in to incremental revenues about were from million market increased million Our QX.

As expected, few in our sales when due by the you a sequentially to gains, percent business share base one quarter QX drop down a exclude to in the ASML. was

on logic more towards Recent foundry and logic indicate now tools the memory in than based spending this momentum tools outlook from down that result process latest forecasted. control of industry spending that - tools reports. benefit etch reports process lithography even for XXXX gaining but weighted the more least The is strengthened and at and are and deposition is CMP and process lithography spending is year which shipments previously WFE XX% has

week, share in process was and million the fab half about market XXXX. will revenue adjustments much in taking and control recent of we again lithography XXXX, first back reduced lower gain to be our the Due as the significantly memory already as XXXX. in in And half million towards weight in spending more it half spending level of $XX are down XXXX $XX from outlook particularly the to even putting second

will suppliers discuss well spending burn as customers year in down inventory, the hold to as progress prepared conditions due memory this are this worsening The they can our the replacing. which in from modest hair cut area speed during is remarks. Jeff his the largely in our we

shipments see I delivery With even revenue to we half a additional in start for tool the process beyond. though trajectory, Ichor impact that I’ll with continue XXXX like second down. and module. growth now liquid our objectives are stronger will this to discuss

equipment web opportunity The to Obviously, is XXXX was market approximately addressable about translates processing for $XXX $X.X a us. wafer LDM an fab product of this and in billion market the this large million. for

Japan delivery share initial those OEMs. the liquid in to to In we to our customer, been a that liquid We've for now our who customer, our finalized expect module are other Japan. position expand to web to now we we and sell in of May in manufacture equipment to a over OEMs shipping delivery want while year partner this with module agreement a an expand processes

a partner supplies is to Ebara. the today supplier DNS Screen delivery chemical market well-known Tokyo to Electron, or Our product and and Dainippon

in Ichor. processing Japan opportunity of Japanese significant therefore is web a the for about the OEMs of for accounted in $X market total and about billion XXXX OEMs two-thirds serving or

have growth the we partner that strategy for pleased are in our secured Japan. We right

complement We we added IP purchase makers late proprietary to in and gas OEMs. a private funded company semiconductor stage the flow support that completed multiple generation we mass of next developed as in have intellectual the leading developing. portfolio delivery by systems by have product technology also property and device our This been QX was the will being

group IP we and innovative their will the place. that patents existing in we have In engineering also the added complement to team addition

of we our only gas system We have development stages of proprietary are the limited delivery in amount a early customer engagement. and

expect we IP the expand additional in serve margins will the However, our to value-added future.

moves program updates We forward. will provide as this

much strategies continued our we optimism exit These our a as our contribution a rate our of run the period be of ahead. and should indicator stronger positive year performance for factors demonstrate revenue that all for to financial execution growth

second to the quarter of to prepared the And the initiatives progress he results second now before our I'll on and update turn guidance. key remarks quarter on over financial in concludes the call provide made QX Jeff the the an business with our guidance Jeff?

Jeff Andreson

Thanks Tom.

expected gains now $XX share is outlook about million. mentioned for to Tom As be our this year our

to a ability the customer's prior continue to market of reduction softer is suppliers’ pleased down inventory gains our business as the will result and moving We the and to the ramp demand largely we won burn with our Ichor. place and be conditions gains, the as have strengthen This is improve. memory specific a share about delay of in one to are current quarters

sequentially We continue the rates annualized third in will gains. million share customers be to loaded and share $XX XXXX. year quarter, backend our an year see to grow With largely the due to ability our at will our exit expect we in for well our the above gains build and rate peers decline seeing is this to

gained business, with In - share in delivery product gains largely in half note will both these the and our are that gains place of that have gas largest we've now a demand our customers. we share fluctuate second

win revenue business that in In growth qualifications expected the our and weldments and be by our a we memory of to segment module. will of this have transition a liquid year the remains the complete we the a the recovery for chemical customer delivery driver the now function largest of ramp delivery the proprietary market. majority timing of The

largest in geographical discussed market. earlier, will addressing now web segment that the partner a have Japan the Tom As be we processing of

customer we customer our our made customers and with expect to strategy expansion the are continuing our to to initial qualifying strides beta We work of delivered on this work this a have and quarter of our geographic continuing unit theirs. in Korean with partner solid are additional also finally We year, with in finalization Japan.

on memory level business be utilizing impacted customers within of panel spending in additional lower penetrating well by the the negatively gas to as today. Korean this work year as we where downturn have OEMs, to continues South Korea Our expand the

incremental us with these did gas weldments To share and shares second XXXX. largely in place. for we position Revenues quarter to in half delivery summarize, gains the revenue solid in in our made progress and stronger halfway from expected in second well are into XXXX third our strengthen initiatives our

now I’ll third our outlook. financial the performance And discuss quarter and

non-GAAP remind GAAP compensation impact unless identify are to based nonrecurring exclude of the amortization P&L non-GAAP These summarizes website. flow and measure and well also charges region you measures the tax sheet today like discussed cash metrics can intangible schedule that I’d of balance expense, that adjustments. as and GAAP as our be assets, acquired and geographic discrete items key I'd note by as would section like share the based. revenue and to results, financial investor metrics found measures of our the I on the First,

the from quarter second Second first year. quarter from $XXX of million were revenues down increased last of XX% and quarter X% the

in our a second quarter slower experience from the largely The primarily was in business due the continue the memory XX.X% the mix which gross quarter. less with entering effects Our declined product first from outlook decline was quarter to slightly volumes the recovery. line lower but and spending favorable our quarter margin to first plastics of of

flat first $XX.X first included result XX margin a and of as recent X.X% in relatively of Operating environment. point of a million revenue represented which flat expenses we engineering and margin Operating our quarter purchase remained addition from approximately from IP gross absorb quarter also of with $XXX,XXX a basis small associated the team. relatively decrease the the the a lower

second the expense remained interest $X.X Our quarter at flat in million.

was full-year a rate to we the are lower rate adjustment lower X.X%, tax quarter for that rate for due the forecasting. Our the year-to-date was now

to earnings $X.X driven of was X.X% per Second revenue, cash I’ll from $X.XX. $XX.X quarter million increased Cash of million. generation turn income by free to $XX.X balance the million sheet. quarter strong $X.X net equal first the was million flow of now share of

a and on million During $X.X loan. million the the patent for repaid quarter, IP purchase completed our of portfolio we $X.X term another

end. decreased the or since Day declined XX we’ve Inventory second quarter $XXX quarter sales quarter. highest from at first from outstanding prior million in of turns X.X, to XXXX. million the Inventory level seen of further $X.X quarter the the XX days to days improved X%

quarter guidance. to third Now I’ll turn the

in of up to $XXX forecast revenues QX. from million which to the for Our X% $XXX is is XX% million range

per level second acquisition to and recent $X.XX Our of operating of earnings the reflects the to profitability a business our increased expenses $X.XX plastics slightly our guidance inclusive in quarter. related improved an share headwinds of operating IP compared to

our between will in rate tax to X% X.X% compared expect be and QX. be between will We X%

ready the Operator, to open we're take questions line. please

Operator

[Operator Instructions] Bolton the line from question Your Quinn Needham. from first of comes

is line open. Your

Quinn Bolton

the for the the gain half Wanted a nice like $XX and up I for with so the third this just looks second rate I in opportunities million if some quarter-to-quarter, quarter, the the just $X start in quarter on half, outlook about stronger WFE math results quick midpoint. share tough if in environment. Congratulations run are do to about million the outlook probably it second use

or I the core whether implies you're sequentially. for which the in actually math driven Wondering, about is of entire to that's Your right, up think business? guidance strengths business $XX the if part grow seeing million, business all doing is other the if am ASML going

Tom Rohrs

largely driven ASML It’s Quinn.

Quinn Bolton

knowing to that expect And Okay. you backend is I that QX? that loaded, assume continue into were pretty strength would second ASMLs that half guidance

Tom Rohrs

Yes. we expect Yes, would so.

Quinn Bolton

Okay.

IP because affect would that’s the can sounds quarter-on-quarter mentioned couple of in thousand you you acquisition the some full what terms a you quarter big On and quarter, OpEx? of hundred think sort us give second of a delta the OpEx like in be it

Jeff Andreson

It Yes, now R&D quarter-on-quarter number. was proxy almost get fluctuation around XXX,XXXis higher but than there It material we're good some developing a it. a because will be little XXX,XXX. some I mean, probably that may it in have bit a all to of

Quinn Bolton

does contract my in from XXXX? Japanese partnership partner guess confident this liquid market go the on that to take to that the of I place, then it how calendar just last that fill in that channel, are you long module the delivery question for how revenue signing have And recognize to

Jeff Andreson

are partner revenue last XXXX we stuff I the plans we and on some you sides really within and I that good is and think so do good can done level the some think both excited tell this. or will of They together. this in to so have I was achieve energy that place month very

as talked kind space. and processing in of And the well-known already tool his Tom they Japan web work a in business in comments. is This

underway. this So excited kick and to well we’re off thing it’s more

Tom Rohrs

already a an thing, and that’s I people, This as point. think company supplier mentioned OEMs the to great is I the Japan. important

represent you the done So very they we to product, and readymade wanted the is which and they come a moreover, work that will acknowledgment with our relationships of distribute chose nice and have. product nature if we've shows they

So we feel good very about.

working on. we been overall, have And

a for Japan lot quite sent Now that last of to just working we've now. with and up the we’ve on done enough a quickly. around in the that month been so We’ve couple very and end it while or quarters been to don't you to was on business deal know a long you spoken very,

to we're be partner to be done we've but more some quite about So be learning with. more been done some able there'll work optimistic to the and work

Operator

question Ellis next Craig comes of FBR. line Your B. from with the Riley

open. is line Your

Craig Ellis

execution for questions grow when second the on to and many congratulations Thanks half the in cannot. and others taking the good ability

and third quarter. like First impacting bit a it's the was in quarter two Can were identified the color made beyond what volume are in Jeff, provide you the was margin point quarter, latter other for on and sounds that plastic I little just gross mix play is you items the clarification a and that on the item? you the more implications third believe one things second that

Jeff Andreson

our memory then with it was lithography think we I lower was business, biggest it's of piece in been the and revenue that had trying customer. reduction an QX our That more much volumes growth. the Well, in and in to really run plastics level mix the future just a pieces other business than infrastructure of maintain it our we’re and affected lower for by

has the gross QX, to level the have upside. share what which in continue So margin market gain mutes of impacted a it bit the affect little of and some will

Tom Rohrs

was I remind don’t as and etch need about CMP memory We off, was think you along we very has know Yes, deposition NAND business was when And that right cooled well. Craig. XD the hot to that. as that’s hot

off also of and think we But And has etch it deposition. has cooled CMP.

well is us has and So site, that performing back very as very and you and through XXXX business this acquired lowered recall was it. happy for been we’re with a it in the we site

intensive is also more capital it we the But that of have. sites one

do. So lot machining there in plastic, cost we in there of is is more fixed and then other a the things

now. along CMP business, business and down the we you when with that's reporting see memory to we’re there So what the exactly an do goes effect

Craig Ellis

makes That the color. for sense. Thanks

I the moment of the where question. where mix the comfortable think the in back half you and middle satisfaction stand? the that in spending year are with of expressed were we’re a seeing up you next ago Tom, levels level Following quarter inventory inventory with customers still given large the of with the into year

Tom Rohrs

am. I Yes,

and adjustments to and lot mentioned are kinds single-digit extent is I with those of quarter, this and think we see in the now main reasonable last the business of over decreases. whatever a a business the we decreases done base

our levels inventory dropping so dramatically not And are at customer site.

actually though make customers market when It’s volume. is reference supplier volume very changing gaining B. to from share high weldment alignment quite Will, different low the just think in did they and we the we’re A And And - low to good. from especially I volume a to than are side. the supplier from are changing

supplier this want inventory that is A’s to are safety then the supplier but of tend we case before build of turn they be. And off supplier B. In stock you one B, on the which to

period. for our on as long little this that I missed stock up transition safety how a think build would bit we probably calculation to

we and seeing So Those in Jeff timing as expect mentioned the work we through they those quite ways are their some didn’t episodes yet simply system are things but correctly. there time. due quite will that

Craig Ellis

related And half first made. And year. do And for to in share first maybe realized? variant. would then its very XX, strong realized lastly million the that me. that a its that expect you that the I’m prior about the between that still of Thanks to Ichor come think just we for this it looking how or that XX and we XXXX XX comment variance when The million gain in you

Tom Rohrs

do. we Yes, we and should

quite quickly shares. explained eventually. of of hope to of but don’t is those just we them the still we it as hit Even if had as will Some they win P&L some terms I in what

we is do deep And the the to is the ones. are machining that the early along which mentioned other one is all there the have been had qualifications toughest ones who precision

those gains those of bit said qualifications We quarter. your Bottom or XXXX. had timing hoped. total yes, quarter Having done next than expect first those in the were share little to we its that, slower in expect of the to again, beginning we a be line hit to shipments this question, -

Operator

Your comes Ackerman line Cowen. the next question of Karl with from

is open. Your line

Karl Ackerman

year. XX of there or a you see from a revenue primarily Jeff that of this logic September the I other opportunities incremental up? Is Tom, have the are market follow million you quarter or expect in and

Jeff Andreson

To end so ICE whether be up to clear in NAND. level sure. for Obviously, bit Karl, it’s us really component been where a the or hard use device has distinguish the part a end that use little with easier some for end cases it’s being -

but for there's for some us be You memory to we really are know distinguish. some and parts going it’s hard to know that

we memory fab has down weaker XX. and like that over equipment the has is only all still for it’s markets wafer progressively logics gotten gotten going stronger year say The the deal can course be to thing looks of albeit progressively to XX

terms don’t of So the use to be. in business, what the the think happens of it’s effect device all go end about the credit I on

Karl Ackerman

to do as a longer-term South these Is it you just suppliers or new or Korea for because between that equipment from perhaps we change think the seem be are today. I intensify, you Japanese Japan your products magnitude any that? ramp would think guess, the trade about there opportunity is they to outlook So the lower? that opportunity would for about guess, to how your revenue ramifications and were tension and I from revenue increased of beginning that opportunities

Jeff Andreson

are who users. the are Since eventually the shipping ones makers we OEM, to are to That’s shipping the good to the question. who device a ones shipping

removed our affecting activities We which back us. are that the end quite the of at of chain, market bit a are from means kind supply

we what the device. of we keep in who open eyes to do terms the our people an on. to is up get And do you the necessarily talk in don’t turn And actually of are get opportunity what’s ultimate going and to users our know

are help trade Theoretically each of do think we in the but trade a who's to that, other. that help a One war is we Tokyo could the having does is things China. and trade Japan say themselves there also So it are the U.S. of into work opposite that it, and that regardless the us Korea can a some kind war. of I doesn't that surface on things know Electron China flipside that in a bit supplier Japanese not two obviously of all

themselves I up those whether today Its And is same not significant or company opportunity. know so significant be out, of it kind either or or Karl going how do sorting to a the worse opportunity, be I end a regardless it’s it’s know we a to opportunity, going opportunity. but significant do as making think significant better very

that geopolitical about it. we aggressively happy excited about are really may. with we the going shifts will where forward said, So We're and are for let there work it,

Karl Ackerman

Sure, and you whether may. actually now own they I you - top more lead approaching think inventory customers are disconnect they whether are Thank now are chain? may if discuss quarter supply within approach an your you. appreciate times think customer the shipments Jeff that if the your entering from one somewhat September you overhang your are or shipments

Jeff Andreson

before matter I deliver delivery perspective. I closely think tool. side the to, they do ship you from alluded a five a mean are they We weeks aligned Tom a probably the very think gas lead we say any probably LDMs I of chemical for know with month and on that

occurring. we that do but merchant is don't always Sometimes know transits we when

where be I that, of not So the delivery four helps. think something than long or just times weeks lead We our machinery weldment precision that are lead they’re from five on times, and might might out earlier pretty but gas lead slightly we ship and that closely by may aligned.

Operator

the Deutsche comes question of next Our Sidney line Bank. with Ho from

Your line open. is

Unidentified Analyst

into market Have the we're going largest any This guys there prepared that is change that stabilized of seen a kind recovery for XXXX? in Jeff you the on are conversations is for and with increased your any memory Sidney. optimize your customers,

Tom Rohrs

turn I I say the are would wouldn't our feel most bottom, they but this, about say yet. customers that at of I there think the seeing like

first that into thought so some year so the obviously the are memory might time we when we turned. talk observing hearing went half It’s all year, as not And that this of be week we case, half of be second been the is this would next that the we period.

feel believed all position I seen operating seen of spaces customers into gain augmenting I share have definitive being profitably. this that right think ourselves opportunity so and haven’t we’ve reached any an put In as to are or evidence have new this we run with the into that ourselves We Nor taking to we to geographies. is case also case. one to still our that opportunity taking market new our and that now the and situation move invest where capable

not customers I will doing same recovery a about of in am time. But of you type at sure I sanguine suspect thing. tell our most them that point are of there the this that half first

Unidentified Analyst

first your at up kind just over visibility outlook year? of all half following into orders of the And has customers’ and the improve

Tom Rohrs

Yes, was first pretty bleak. half

Jeff Andreson

mean can a say what churn the just a I of quarter little degree we’d a we bit to would around and you Well for amount in us. stabilized large that’s call tell

visibility and that predictable that is means ship so So more and stuff the it's much who better. when we

Operator

Mitch Our of Markets. line last comes the from with Steves question RBC Capital

You’re now live.

Mitch Steves

terms one second sequentially in was like first but based it profile the particularly better. the is margin the half of down on commentary sounds Just gross to going

would assume a fair be that gross aggressive? margins or bottom, I if So characterization have potentially that

Jeff Andreson

bigger a with headwind Relatively our that’s bit that fair you right that drag in QX kind kind and we plastic in in of we’re up can start help it muted our here of slightly business revenue just that dealing our flow QX. think and will and through little up now in say, lot will of we I’ll chunks as gross guide margin don’t well a get

Tom Rohrs

we said talked two things that’s the we well or plastics Yes, one about understood. I think

shown have been that lower margins up gains share ones the aspect first. other have The the

helpful. different from gross our to delivery not showed start in gain The share market delivery weldments gas that will margins. ongoing up basically now first be the kick will gas that's So

in The They be mostly into larger the spillover precision machining spillover kick the margins that type the will QX ones on year. of will some products. next they’ll but

so all or of but the have three through work the next months. hope might will has a out the then four lower And beginning the it of been little profile that in we still course

Mitch Steves

color secondly year why to just much and given get then the few down there that for they were in ASMO just customer be Is we a ASMOs terms [indiscernible] a And to ramping scale brought this trying times here up? how that this are year. revenue XX% coming potential know an idea of what

Tom Rohrs

Hope not.

Jeff Andreson

Yes, ASMO. because be on it wouldn’t

Tom Rohrs

We on the be don’t denominator. want to based XX%

Jeff Andreson

ways Yes, I go that it are wouldn’t - that get given outlook we guys probably it's got think want there. because to putting to together, still the you to

Operator

There are back now further question Rohrs. this turn Tom over the at to I time. call no will

Tom Rohrs

call you updating us this call Thank forward in you. And quarter. thank Well for on November. we on our joining to look you again QX

Operator

teleconference. today concludes This

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