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ICHOR HOLDINGS, LTD. 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Ichor Holdings

Filing date:

02/21/2025

TLDR:

Ichor Holdings, Ltd.’s 2024 10-K filing shows a slight revenue increase but a net loss and decreasing gross margin. The company faces risks related to customer concentration and industry cyclicality but has opportunities in expanding market share and diversifying product offerings.

ELI5:

Ichor, a company that makes parts for semiconductor equipment, made a little more money this year, but they still lost money overall. They have some big customers, which is risky, but they also have chances to grow by selling more to those customers and making new products.

Accession #:

0001628280-25-006992

Published on

Analyst Summary

  • Revenue increased from $811.1 million in 2023 to $849.0 million in 2024 (4.7% increase).
  • Gross Margin decreased from 12.7% in 2023 to 12.2% in 2024.
  • Operating Loss decreased from $(10.9) million in 2023 to $(7.6) million in 2024.
  • Net Loss decreased from $(43.0) million in 2023 to $(20.8) million in 2024.
  • Lam Research and Applied Materials accounted for 73% of total sales in 2024, highlighting customer concentration risk.
  • The company has a substantial amount of indebtedness.
  • Gross Profit Margin: 12.17%, a decrease of 4.17% from the previous year.
  • Operating Profit Margin: -0.90%, an increase of 30.77% from the previous year.
  • Net Profit Margin: -2.45%, an increase of 53.77% from the previous year.
  • Current Ratio: 3.34, a decrease of 17.73% from the previous year.
  • Debt-to-Equity Ratio: 0.43, a decrease of 34.85% from the previous year.
  • Interest Coverage Ratio: 0.30, a decrease of 36.17% from the previous year.
  • Inventory Turnover: 3.01, a decrease of 7.38% from the previous year.
  • Days Sales Outstanding (DSO): 37.17 days, an increase of 23.98% from the previous year.
  • Days Payable Outstanding (DPO): 44.93 days, an increase of 44.19% from the previous year.
  • Revenue Growth: 4.67%.
  • Net Income Growth: -51.56%.
  • EPS Growth: -56.46%.

Opportunities and Risks

  • Dependence on the cyclical semiconductor capital equipment industry.
  • High customer concentration.
  • Negotiating leverage of large OEM customers.
  • Intense competition and rapid technological evolution.
  • Weakness in the global economy and geopolitical instability.
  • Complex manufacturing processes.
  • Potential product defects and warranty claims.
  • Dependence on a limited number of suppliers.
  • Supply chain disruptions and manufacturing interruptions.
  • Cybersecurity threats.
  • Privacy and data protection regulations (GDPR, CCPA).
  • Intellectual property infringement claims.
  • Environmental laws and regulations.
  • Tax law changes.
  • Substantial indebtedness and restrictive covenants.
  • Interest rate risk associated with variable rates on outstanding indebtedness.
  • Fluctuations in quarterly sales and operating results.
  • Anti-takeover provisions in articles of association.
  • Growing market share within existing customer base.
  • Expanding total available market with expanded product offerings (e.g., machined products, proprietary components, chemical delivery systems).
  • Expanding total customer base within the fluid delivery market.
  • Improving manufacturing process efficiency.
  • Deep fluids engineering expertise.
  • Early engagement with customers on product development.
  • Long history and strong relationships with top-tier customers.
  • Operational excellence with scale to support the largest customers.
  • Capital efficient and scalable business model.

Potential Implications

Company Performance

  • Closely track gross margin trends and identify strategies to improve profitability.
  • Actively pursue new customers to reduce reliance on Lam Research and Applied Materials.
  • Strengthen supply chain resilience to mitigate disruptions.
  • Continue to invest in cybersecurity measures to protect against evolving threats.
  • Monitor interest rate risk and explore opportunities to refinance debt on more favorable terms.

Ichor Holdings, Ltd. (ICHR) 2024 10-K Filing Report

Executive Summary

This report analyzes Ichor Holdings, Ltd.’s 2024 10-K filing. Key findings include a slight increase in revenue, a decrease in gross margin, and a net loss. The company faces risks related to customer concentration, industry cyclicality, and global economic uncertainty. Opportunities exist in expanding market share with existing customers and diversifying product offerings. Overall, a cautious approach is warranted, with a “Hold” recommendation. Further monitoring of gross margin trends and customer concentration is advised.

Company Overview

Ichor Holdings, Ltd. (ICHR) is a leader in the design, engineering, and manufacturing of critical fluid delivery subsystems and components for semiconductor capital equipment. The company’s primary product offerings include gas and chemical delivery systems and subsystems. Ichor serves top-tier OEM customers, including Lam Research, Applied Materials, and ASML. The semiconductor capital equipment industry is cyclical and competitive.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management attributes the revenue increase to increased spending within the semiconductor capital equipment industry. However, they acknowledge continued lower demand from customers due to inventory digestion and spending levels within their primary served markets. They also discuss labor cost reduction initiatives. The tone is cautiously optimistic, acknowledging challenges while highlighting growth strategies.

Financial Statement Analysis

Key Ratios and Trends

  • Revenue: Increased from $811.1 million in 2023 to $849.0 million in 2024 (4.7% increase).
  • Gross Margin: Decreased from 12.7% in 2023 to 12.2% in 2024.
  • Operating Loss: Decreased from $(10.9) million in 2023 to $(7.6) million in 2024.
  • Net Loss: Decreased from $(43.0) million in 2023 to $(20.8) million in 2024.
  • Capital Expenditures: Remained relatively stable at 2.1% of sales in 2024 vs 1.9% in 2023.

Visual Aids

(Note: Actual charts and tables would be inserted here if the data was available in a suitable format. Examples are provided below.)

Revenue Trend

Revenue Trend Chart

(Placeholder for a revenue trend chart showing revenue over the past 3 years.)

Gross Margin Trend

Gross Margin Trend Chart

(Placeholder for a gross margin trend chart showing gross margin over the past 3 years.)

Red Flags and Uncommon Metrics

  • Customer Concentration: Lam Research and Applied Materials accounted for 73% of total sales in 2024. This highlights a significant customer concentration risk.
  • Decreasing Gross Margin: The decrease in gross margin despite increased revenue is concerning and warrants further investigation. Management attributes this to unfavorable sales mix and increased factory labor and overhead costs.
  • Inventory Valuation: Inventory valuation adjustments are significant, indicating potential challenges in forecasting demand or managing inventory effectively.
  • Debt: The company has a substantial amount of indebtedness.

Risk and Opportunity Assessment

Risks

  • Economic and Strategic Risks:
    • Dependence on the cyclical semiconductor capital equipment industry.
    • High customer concentration.
    • Negotiating leverage of large OEM customers.
    • Intense competition and rapid technological evolution.
    • Weakness in the global economy and geopolitical instability.
  • Business and Operational Risks:
    • Complex manufacturing processes.
    • Potential product defects and warranty claims.
    • Dependence on a limited number of suppliers.
    • Supply chain disruptions and manufacturing interruptions.
    • Cybersecurity threats.
  • Legal and Regulatory Risks:
    • Privacy and data protection regulations (GDPR, CCPA).
    • Intellectual property infringement claims.
    • Environmental laws and regulations.
    • Tax law changes.
  • Liquidity and Capital Resources Risks:
    • Substantial indebtedness and restrictive covenants.
    • Interest rate risk associated with variable rates on outstanding indebtedness.
  • Ordinary Share Ownership Risks:
    • Fluctuations in quarterly sales and operating results.
    • Anti-takeover provisions in articles of association.

Opportunities

  • Growth Strategy:
    • Growing market share within existing customer base.
    • Expanding total available market with expanded product offerings (e.g., machined products, proprietary components, chemical delivery systems).
    • Expanding total customer base within the fluid delivery market.
    • Improving manufacturing process efficiency.
  • Competitive Strengths:
    • Deep fluids engineering expertise.
    • Early engagement with customers on product development.
    • Long history and strong relationships with top-tier customers.
    • Operational excellence with scale to support the largest customers.
    • Capital efficient and scalable business model.

Conclusion and Actionable Insights

Ichor Holdings faces a challenging environment with cyclical industry dynamics and customer concentration risks. While revenue increased slightly, the declining gross margin is a concern. The company has a solid growth strategy and competitive strengths, but execution is critical.

Overall Assessment: Hold.

Recommendations:

  • Monitor Gross Margin: Closely track gross margin trends and identify strategies to improve profitability.
  • Diversify Customer Base: Actively pursue new customers to reduce reliance on Lam Research and Applied Materials.
  • Manage Supply Chain: Strengthen supply chain resilience to mitigate disruptions.
  • Cybersecurity: Continue to invest in cybersecurity measures to protect against evolving threats.
  • Debt Management: Monitor interest rate risk and explore opportunities to refinance debt on more favorable terms.

Ichor Holdings, Ltd. Financial Analysis – 2024

1. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin

    • Ratio/Metric: Gross Profit / Net Sales = $103,334 / $849,040 = 12.17%
    • Trend: Previous year Gross Profit Margin was 12.7%. Percentage change: (12.17% – 12.7%) / 12.7% = -4.17%
    • Industry: The semiconductor industry generally has higher gross margins, often in the 40-60% range. Ichor’s gross margin is significantly lower, indicating potential cost pressures or a different business model (e.g., more focus on lower-margin services).
  • Operating Profit Margin

    • Ratio/Metric: Operating Loss / Net Sales = $(7,640) / $849,040 = -0.90%
    • Trend: Previous year Operating Profit Margin was -1.3%. Percentage change: (-0.90% – (-1.3%)) / (-1.3%) = -30.77%
    • Industry: Semiconductor equipment manufacturers typically have operating margins in the 15-25% range. Ichor’s negative operating margin is a significant concern.
  • Net Profit Margin

    • Ratio/Metric: Net Loss / Net Sales = $(20,820) / $849,040 = -2.45%
    • Trend: Previous year Net Profit Margin was -5.3%. Percentage change: (-2.45% – (-5.3%)) / (-5.3%) = -53.77%
    • Industry: The semiconductor industry generally has net profit margins in the 10-20% range. Ichor’s negative net profit margin is a significant concern.
  • Return on Assets (ROA)

    • Ratio/Metric: Net Loss / Total Assets = $(20,820) / $995,564 = -2.09%
    • Industry: Semiconductor companies typically have ROAs in the 5-15% range. Ichor’s negative ROA indicates inefficient asset utilization.
  • Return on Equity (ROE)

    • Ratio/Metric: Net Loss / Total Shareholders’ Equity = $(20,820) / $698,336 = -2.98%
    • Industry: Semiconductor companies typically have ROEs in the 10-25% range. Ichor’s negative ROE indicates poor returns to shareholders.
  • Earnings Per Share (EPS) – Basic and Diluted

    • Ratio/Metric: Basic EPS = $(20,820) / 32,759,896 = -$0.64; Diluted EPS = $(20,820) / 32,759,896 = -$0.64
    • Trend: Previous year Basic and Diluted EPS was -$1.47. Percentage change: (-$0.64 – (-$1.47)) / (-$1.47) = -56.46%
    • Industry: EPS varies widely, but positive EPS is expected for healthy companies. Ichor’s negative EPS is a concern.

Liquidity

  • Current Ratio

    • Ratio/Metric: Total Current Assets / Total Current Liabilities = $452,620 / $135,670 = 3.34
    • Trend: Previous year Current Ratio was $401,365 / $98,962 = 4.06. Percentage change: (3.34 – 4.06) / 4.06 = -17.73%
    • Industry: A current ratio of 1.5-2.0 is generally considered healthy. Ichor’s current ratio is high, suggesting good liquidity, but potentially inefficient use of current assets.
  • Quick Ratio (Acid-Test Ratio)

    • Ratio/Metric: (Total Current Assets – Inventories) / Total Current Liabilities = ($452,620 – $250,102) / $135,670 = 1.50
    • Trend: Previous year Quick Ratio was ($401,365 – $245,885) / $98,962 = 1.57. Percentage change: (1.50 – 1.57) / 1.57 = -4.46%
    • Industry: A quick ratio of 1.0 or higher is generally considered healthy. Ichor’s quick ratio is adequate.
  • Cash Ratio

    • Ratio/Metric: (Cash and Cash Equivalents) / Total Current Liabilities = $108,669 / $135,670 = 0.80
    • Trend: Previous year Cash Ratio was $79,955 / $98,962 = 0.81. Percentage change: (0.80 – 0.81) / 0.81 = -1.23%
    • Industry: A cash ratio of 0.5 or higher is generally considered healthy. Ichor’s cash ratio is good.

Solvency/Leverage

  • Debt-to-Equity Ratio

    • Ratio/Metric: Total Liabilities / Total Shareholders’ Equity = $297,228 / $698,336 = 0.43
    • Trend: Previous year Debt-to-Equity Ratio was $373,804 / $564,677 = 0.66. Percentage change: (0.43 – 0.66) / 0.66 = -34.85%
    • Industry: A debt-to-equity ratio of 1.0 or lower is generally considered healthy. Ichor’s debt-to-equity ratio is good.
  • Debt-to-Assets Ratio

    • Ratio/Metric: Total Liabilities / Total Assets = $297,228 / $995,564 = 0.30
    • Trend: Previous year Debt-to-Assets Ratio was $373,804 / $938,481 = 0.40. Percentage change: (0.30 – 0.40) / 0.40 = -25%
    • Industry: A debt-to-assets ratio of 0.5 or lower is generally considered healthy. Ichor’s debt-to-assets ratio is good.
  • Interest Coverage Ratio (Times Interest Earned)

    • Ratio/Metric: Earnings Before Interest and Taxes (EBIT) / Interest Expense = $(7,640) + $9,266 + $1,148 / $9,266 = 0.30
    • Trend: Previous year Interest Coverage Ratio was $(10,895) + $19,379 + $804 / $19,379 = 0.47. Percentage change: (0.30 – 0.47) / 0.47 = -36.17%
    • Industry: An interest coverage ratio of 1.5 or higher is generally considered healthy. Ichor’s interest coverage ratio is very low, indicating difficulty in meeting interest obligations.

Activity/Efficiency

  • Inventory Turnover

    • Ratio/Metric: Cost of Sales / Average Inventory = $745,706 / (($250,102 + $245,885) / 2) = 3.01
    • Trend: Previous year Inventory Turnover was $707,724 / (($245,885 + $190,027) / 2) = 3.25. Percentage change: (3.01 – 3.25) / 3.25 = -7.38%
    • Industry: Inventory turnover varies widely in the semiconductor industry. A lower turnover could indicate slow-moving inventory or obsolescence issues.
  • Days Sales Outstanding (DSO)

    • Ratio/Metric: (Accounts Receivable / Net Sales) * 365 = ($86,619 / $849,040) * 365 = 37.17 days
    • Trend: Previous year DSO was ($66,721 / $811,120) * 365 = 29.98 days. Percentage change: (37.17 – 29.98) / 29.98 = 23.98%
    • Industry: DSO varies, but a lower number is generally better. Ichor’s DSO is increasing, indicating slower collection of receivables.
  • Days Payable Outstanding (DPO)

    • Ratio/Metric: (Accounts Payable / Cost of Sales) * 365 = ($91,719 / $745,706) * 365 = 44.93 days
    • Trend: Previous year DPO was ($60,490 / $707,724) * 365 = 31.16 days. Percentage change: (44.93 – 31.16) / 31.16 = 44.19%
    • Industry: DPO varies, but a higher number is generally better. Ichor’s DPO is increasing, indicating slower payment to suppliers.
  • Asset Turnover

    • Ratio/Metric: Net Sales / Total Assets = $849,040 / $995,564 = 0.85
    • Trend: Previous year Asset Turnover was $811,120 / $938,481 = 0.86. Percentage change: (0.85 – 0.86) / 0.86 = -1.16%
    • Industry: Asset turnover varies, but a higher number is generally better. Ichor’s asset turnover is relatively low, indicating inefficient asset utilization.

Valuation

  • Price-to-Earnings Ratio (P/E)

    • Ratio/Metric: Stock Price / EPS = $33.52 / (-$0.64) = -52.38
    • Industry: P/E ratios are typically positive. A negative P/E ratio indicates negative earnings, making it difficult to compare.
  • Price-to-Book Ratio (P/B)

    • Ratio/Metric: Market Cap / Total Shareholders’ Equity = (33,859,542 * $33.52) / $698,336,000 = 1.63
    • Industry: P/B ratios vary, but a ratio between 1 and 3 is generally considered reasonable.
  • Price-to-Sales Ratio (P/S)

    • Ratio/Metric: Market Cap / Net Sales = (33,859,542 * $33.52) / $849,040,000 = 1.34
    • Industry: P/S ratios vary, but a ratio below 2 is generally considered reasonable.
  • Enterprise Value to EBITDA (EV/EBITDA)

    • Ratio/Metric: EV = Market Cap + Total Debt – Cash = (33,859,542 * $33.52) + $128,523,000 – $108,669,000 = $1,154,448,000 + $128,523,000 – $108,669,000 = $1,174,302,000
      EBITDA = Net Income + Interest + Taxes + Depreciation & Amortization = $(20,820,000) + $9,266,000 + $2,766,000 + $30,744,000 = $21,956,000
      EV/EBITDA = $1,174,302,000 / $21,956,000 = 53.48
    • Industry: EV/EBITDA ratios vary, but a high ratio could indicate overvaluation.

Growth Rates

  • Revenue Growth

    • Ratio/Metric: (Current Revenue – Previous Revenue) / Previous Revenue = ($849,040 – $811,120) / $811,120 = 4.67%
  • Net Income Growth

    • Ratio/Metric: (Current Net Income – Previous Net Income) / Previous Net Income = ($-20,820 – ($-42,985)) / ($-42,985) = -51.56%
  • EPS Growth

    • Ratio/Metric: (Current EPS – Previous EPS) / Previous EPS = ($-0.64 – ($-1.47)) / ($-1.47) = -56.46%

Other Relevant Metrics

  • Non-GAAP Metrics: The company presents several non-GAAP metrics, including gross margin, operating income, and net income. These metrics exclude amortization of intangible assets, share-based compensation, transaction-related costs, and other adjustments. While these adjustments can provide insights into the company’s underlying performance, it’s important to scrutinize them. For example, excluding share-based compensation can be misleading as it is a real expense. The adjustments do not appear unreasonable, but investors should be aware of the differences between GAAP and non-GAAP results.

2. Commentary

Ichor Holdings’ financial performance in 2024 shows a slight revenue increase, but profitability remains a significant concern with negative operating and net profit margins. While liquidity and solvency ratios appear healthy, the low interest coverage ratio and negative earnings raise questions about the company’s ability to meet its financial obligations and generate returns for shareholders. The increasing DSO and DPO trends suggest potential issues with working capital management. Overall, Ichor needs to focus on improving its profitability and operational efficiency to ensure long-term financial stability.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️