Ichor Holdings, Ltd. Q3 FY2025 earnings call

• Jeff Andreson mentioned Q3 revenue exceeded midpoint of expectations, with customer accelerations in gas panel deliveries for etch and deposition, but non-semi end markets weakened, especially IMG. - Greg Swyt discussed non-GAAP P&L metrics, Q3 results, balance sheet, and Q4 guidance including revenue range, gross margin, operating expenses, and EPS. - Phil Barros outlined strategic priorities for 2026, including realigning global footprint and cost structure, improving product margins across verticals, focusing on smoother execution of proprietary products, and expanding the machining business which has high contribution margin.

Third quarter revenues were $239 million, exceeding expectations. The semi segment had strong demand for etch and deposition applications, but other served markets, especially non-semi end markets like IMG (commercial space, aerospace and defense), weakened. IMG's business, which contributes strong margin, saw order rates decline, impacting Q3 gross margin by 1 percentage point. IMG is expected to run at a lower rate in Q4, affecting revenue and gross margin guidance.

• Q4 2025 revenue expected in range of $210 million to $230 million. - Q4 gross margins expected between 10% and 12%. - Q4 operating expenses expected to remain ~$23.7 million. - Net interest expense expected ~$1.7 million. - Tax expense expected ~$900,000. - EPS guidance range for Q4: loss of $0.14 to profit of $0.02.

• Demand erosion in multiple applications including EUV lithography and silicon carbide, and decline in non-semi end markets like IMG. - IMG order rates not recovering to planned levels, impacting gross margin. - Pull-in of deliveries from Q4 to Q3 affecting overall second-half demand perception.

Q: Can you quantify the revenue shortfall from IMG in Q3? How much is IMG sales expected to decline in 4Q? What's driving the decline? And what's the prognosis for returning to Q2 revenue level sometime next year?

A: Jeff Andreson said IMG was down ~$2.5M from expectation in Q3, expected to drop similar level in Q4, stabilize, then recover in Q1, maybe back to expected levels by Q2. Decline due to new programs where funding didn't reach prime to them.

Q: In terms of the top 4, and there's been more weakness on smaller of the 4 customers, what sort of optimism do you have?

A: Jeff Andreson said visibility shows recovery into Q1, some impact from elimination of 50% ownership threshold, Q4 is trough, expect growth in first half next year.

Q: Adjusting for lower IMG mix in Q3, how did gross margins fare? What's the plan to improve execution around internal supply and product yield?

A: Phil Barros said new products on track, key initiatives to increase gross margin, close to getting valve product line to target margins early next year. Greg Swyt added recovery in machining business within Q3, plans to get to mid-teens gross margin in second half with machining strategy.

Q: Are Q3 revenue benefits from pull-ins and Q4 revenue decline from #3 and #4 customers correlated?

A: Jeff Andreson said generally unrelated, pull-in was offsetting IMG softness, largely at largest customer.

Q: Thoughts on next year's WFE trend and 250M run rate?

A: Jeff Andreson said expect back half of next year strong, Greg Swyt said still expect to get to mid-teens gross margin with machining strategy to reach 250M run rate.

Q: Color on 2026 transition elements and moving to higher gross margin?

A: Phil Barros said 3 major levers: getting products into volume, aligning global operations and footprint, expanding machining business. Greg Swyt added on operations and product expansion.

Q: Update on machining business capacity and valve system qualification?

A: Phil Barros said met hiring targets in Minnesota, Malaysia and Mexico footprints to increase capacity, fourth customer expected to come online in first half next year for valve supply.

Q: Past hiring challenges in U.S. machining operations and CTO perspective?

A: Phil Barros said incentive programs helped meet hiring targets, prior perspective as CTO helps with aligning cost targets and product transitions. Jeff Andreson added Phil has been critical in driving cost target alignment.

Q: Expect year-over-year growth in 2026 vs 2025? Plan for mid-teens gross margin in second half of 2026? Aspirational goal of 20% gross margin?

A: Jeff Andreson said expect growth, Greg Swyt said plan to hit mid-teens gross margin in second half of 2026, Phil Barros said long-range aspirational goal of 20% gross margin with flow control as enabler.