ICHOR HOLDINGS, LTD. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statement Concerning Forward-Looking Statements This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. You should not place undue reliance on these statements. All statements other than statements of historical fact included in this report are forward-looking statements. These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. These forward-looking statements are identified by the use of terms and phrases such as “anticipate," “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” and similar terms and phrases, including references to assumptions. However, these words are not the exclusive means of identifying such statements. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that we will achieve those plans, intentions or expectations. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, include geopolitical, economic and market conditions, including high inflation, changes to tax, trade, fiscal and monetary policy, high interest rates, currency fluctuations, challenges in the supply chain and any disruptions in the global economy as a result of the conflicts in Ukraine and the Middle East; dependence on expenditures by manufacturers and cyclical downturns in the semiconductor capital equipment industry; reliance on a very small number of original equipment manufacturers (“OEMs”) for a significant portion of sales; being unable to attract, hire, integrate and retain key personnel and other necessary employees; negotiating leverage held by our customers; competitiveness and rapid evolution of the industries in which we participate; keeping pace with developments in the industries we serve and with technological innovation generally; designing, developing and introducing new products that are accepted by OEMs in order to retain our existing customers and obtain new customers; becoming involved in litigation and regulatory proceedings, which could require significant attention from our management and result in significant expense to us and disruptions in our business; managing our manufacturing and procurement process effectively; defects in our products that could damage our reputation, decrease market acceptance and result in potentially costly litigation; our dependence on a limited number of suppliers; and other factors set forth in this report, and those set forth in Part I – Item 1A. Risk Factors of our Annual Report on Form 10‑K for the fiscal year ended December 26, 2025 (“2025 Annual Report on Form 10-K”) and our other filings with the Securities and Exchange Commission (“SEC”). All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements contained in this report and in our 2025 Annual Report on Form 10-K, as well as other cautionary statements that are made from time to time in our other filings with the SEC and public communications. You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties. We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. 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. 14 Overview We are a leader in the design, engineering and manufacturing of critical fluid delivery subsystems and components primarily for semiconductor capital equipment, as well as other industries such as defense/aerospace and medical. Our primary product offerings include gas and chemical delivery subsystems, collectively known as fluid delivery subsystems, which are key elements of the process tools used in the manufacturing of semiconductor devices. Our gas delivery subsystems deliver, monitor and control precise quantities of the specialized gases used in semiconductor manufacturing processes such as etch and deposition. Our chemical delivery subsystems precisely blend and dispense the reactive liquid chemistries used in semiconductor manufacturing processes such as chemical-mechanical planarization, electroplating, and cleaning. We also provide precision-machined components, weldments, e-beam and laser welded components, precision vacuum and hydrogen brazing, surface treatment technologies, and other proprietary products. 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 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 allows OEMs to leverage their suppliers’ highly specialized engineering, design, and production skills while focusing their internal resources on their own value-added processes. Outsourcing enables 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, and Mexico. The following table summarizes key financial information for the periods indicated. Amounts are presented in accordance with GAAP unless explicitly identified as being a non-GAAP metric. For a description of our non-GAAP metrics and reconciliations to the most comparable GAAP metrics, please refer below to the section entitled Non-GAAP Financial Results within this report. Three Months Ended March 27, 2026 March 28, 2025 (dollars in thousands, except per share amounts) Net sales $ 256,068 $ 244,465 Gross margin 12.6 % 11.7 % Non-GAAP gross margin 12.8 % 12.4 % Operating margin 0.8 % (0.5) % Non-GAAP operating margin 3.4 % 2.7 % Net loss $ (2,469) $ (4,559) Non-GAAP net income $ 5,287 $ 4,236 Diluted EPS $ (0.07) $ (0.13) Non-GAAP diluted EPS $ 0.15 $ 0.12 Macroeconomic Conditions and Business Update The semiconductor capital equipment industry is inherently cyclical. Overall semiconductor equipment spending in 2025 increased compared to 2024 levels, and this momentum has continued into the first quarter of 2026, characterized by robust demand in our primary markets of etch and deposition. During the three months ended March 27, 2026, our net sales increased to $256.1 million, compared to $244.5 million for the same period in the prior year. This increase reflects sustained demand from our primary customers and served markets. To better align our global operations with evolving customer demand and drive operational efficiencies, we initiated a geographic footprint rationalization and restructuring plan in 2025. As part of this realignment, in 2025 we began transitioning certain manufacturing activities and relocating machining assets to our expanded high-volume facilities, which continued into the first quarter of 2026. 15 While we continue to benefit from the broader growth in the semiconductor equipment industry, our operations and financial results remain subject to significant risks and uncertainties within the global trade and regulatory landscape. Specifically, the global trade environment remains complex and volatile. The outcome of ongoing international trade negotiations and the imposition of new global tariffs create uncertainty that could materially affect our material costs, product pricing, and overall demand. In addition, the U.S. government continues to expand and refine export controls and licensing requirements aimed at restricting access to advanced semiconductor technology, particularly in China, which may reduce demand for certain equipment, disrupt our customers’ manufacturing plans, and adversely affect our global supply chain. While macroeconomic, geopolitical, and regulatory challenges may persist in the near and intermediate term, we remain confident in our belief that long‑term demand for semiconductors, semiconductor capital equipment, and our products will continue to grow, driven by increasing requirements for expanded semiconductor manufacturing capacity and advanced process technologies. 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 27, 2026 March 28, 2025 (in thousands) Net sales $ 256,068 $ 244,465 Cost of sales 223,810 215,943 Gross profit 32,258 28,522 Operating expenses: Research and development 5,530 5,874 Selling, general, and administrative 22,565 21,742 Amortization of intangible assets 2,078 2,078 Total operating expenses 30,173 29,694 Operating income (loss) 2,085 (1,172) Interest expense, net 1,678 1,646 Other expense, net 323 81 Income (loss) before income taxes 84 (2,899) Income tax expense 2,553 1,660 Net loss $ (2,469) $ (4,559) 16 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 27, 2026 March 28, 2025 Net sales 100.0 100.0 Cost of sales 87.4 88.3 Gross profit 12.6 11.7 Operating expenses: Research and development 2.2 2.4 Selling, general, and administrative 8.8 8.9 Amortization of intangible assets 0.8 0.9 Total operating expenses 11.8 12.1 Operating income (loss) 0.8 (0.5) Interest expense, net 0.7 0.7 Other expense, net 0.1 0.0 Income (loss) before income taxes 0.0 (1.2) Income tax expense 1.0 0.7 Net loss (1.0) (1.9) Comparison of the Three Months Ended March 27, 2026 and March 28, 2025 Net sales Three Months Ended Change March 27, 2026 March 28, 2025 Amount % (dollars in thousands) Net sales $ 256,068 $ 244,465 $ 11,603 4.7 % The increase in net sales from the first quarter of 2025 to the first quarter of 2026 was primarily due to increased customer demand stemming from increased levels of spending within the semiconductor capital equipment industry in support of expanded semiconductor manufacturing capacity and advanced process technologies. Gross margin Three Months Ended Change March 27, 2026 March 28, 2025 Amount % (dollars in thousands) Cost of sales $ 223,810 $ 215,943 $ 7,867 3.6 % Gross profit $ 32,258 $ 28,522 $ 3,736 13.1 % Gross margin 12.6 % 11.7 % +90 bps The increase in gross margin from the first quarter of 2025 to the first quarter of 2026 was primarily due to severance charges of $1.1 million in the first quarter of 2025 that did not repeat in the first quarter of 2026 and increased factory utilization. 17 Research and development Three Months Ended Change March 27, 2026 March 28, 2025 Amount % (dollars in thousands) Research and development $ 5,530 $ 5,874 $ (344) (5.9) % The decrease in research and development expenses from the first quarter of 2025 to the first quarter of 2026 was primarily due to a decrease in employee-related expenses, partially offset by an increase in material and service costs from our new product development programs. Selling, general, and administrative Three Months Ended Change March 27, 2026 March 28, 2025 Amount % (dollars in thousands) Selling, general, and administrative $ 22,565 $ 21,742 $ 823 3.8 % The increase in selling, general, and administrative expenses from the first quarter of 2025 to the first quarter of 2026 was primarily due to increased employee-related expenses of $1.3 million and incremental restructuring and facility exit costs of $0.7 million, partially offset by decreased facility costs of $0.5 million, decreased severance costs of $0.4 million, and decreased outside service provider costs of $0.3 million. Amortization of intangible assets Three Months Ended Change March 27, 2026 March 28, 2025 Amount % (dollars in thousands) Amortization of intangible assets $ 2,078 $ 2,078 $ — — % Amortization expense remained substantially unchanged from the first quarter of 2025 to the first quarter of 2026. Interest expense, net Three Months Ended Change March 27, 2026 March 28, 2025 Amount % (dollars in thousands) Interest expense, net $ 1,678 $ 1,646 $ 32 1.9 % Weighted average borrowings outstanding $ 123,506 $ 127,562 $ (4,056) (3.2) % Weighted average borrowing rate 5.95 % 6.24 % -29 bps Interest expense, net, remained substantially unchanged from the first quarter of 2025 to the first quarter of 2026 due to a decrease in our weighted average borrowings outstanding and a decrease in our weighted average borrowing rate, offset by lower interest income. 18 The reduction in our weighted average borrowings outstanding is due to the payment of our scheduled principal payments. The decrease in our weighted average borrowing rate was due to lower Secured Overnight Financing Rate ("SOFR") rates, the variable component of our borrowing rate (-74 bps), partially offset by higher applicable margin, the fixed component of our borrowing rate, under our third quarter 2025 credit agreement (+45 bps). Other expense, net Three Months Ended Change March 27, 2026 March 28, 2025 Amount % (dollars in thousands) Other expense, net $ 323 $ 81 $ 242 298.8 % The change in other expense, net from the first quarter of 2025 to the first quarter of 2026 was primarily due to currency exchange rate fluctuations during the quarter related to our local currency payables of our foreign operations. Income tax expense Three Months Ended Change March 27, 2026 March 28, 2025 Amount % (dollars in thousands) Income tax expense $ 2,553 $ 1,660 $ 893 53.8 % Income (loss) before income taxes $ 84 $ (2,899) $ 2,983 (102.9) % Effective income tax rate 3039.3% -57.3% +309,660 bps The increase in income tax expense from the first quarter of 2025 to the first quarter of 2026 was primarily due to taxes on foreign income that differs from the U.S. tax rate, the ending of the Singapore tax holiday at the end of Q1 2026, and the impact of a valuation allowance against U.S. deferred tax assets, respectively. Non‑GAAP Financial Results Management uses certain 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. All non-GAAP adjustments are presented on a gross basis. Non-GAAP gross profit, operating income, and net income (loss) are defined as: gross profit, operating income (loss), or net income (loss), respectively, excluding (1) amortization of intangible assets, share-based compensation expense, and discrete or infrequent charges and gains that are outside of normal business operations, including transaction-related costs, contract and legal settlement gains and losses, facility shutdown costs, inventory impairment charges, and severance costs associated with reduction-in-force programs, to the extent they are present in gross profit, operating income (loss), and net income (loss), respectively; and (2) with respect to non-GAAP net income (loss), the tax impacts associated with these non-GAAP adjustments, as well as non-recurring discrete tax items, including deferred tax asset valuation allowance charges. All non-GAAP adjustments are presented on a gross basis; the related income tax effects, including current and deferred income tax expense, are included in the adjustment line under the heading "Tax adjustments related to non-GAAP adjustments". Non-GAAP diluted earnings per share ("EPS") is defined as non-GAAP net income divided by weighted average diluted ordinary shares outstanding during the period. Non-GAAP gross margin and non-GAAP operating margin are defined as non-GAAP gross profit and non-GAAP operating income, respectively, divided by net sales. 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. 19 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 other discrete or infrequent charges and gains that are outside of normal business operations. The following table presents our unaudited non‑GAAP gross profit and non-GAAP gross margin and a reconciliation from GAAP gross profit, the most comparable GAAP measures, for the periods indicated: Three Months Ended March 27, 2026 March 28, 2025 (dollars in thousands) U.S. GAAP gross profit $ 32,258 $ 28,522 Non-GAAP adjustments: Share-based compensation 545 707 Facility shutdown costs (1) — 304 Other (2) — 783 Non-GAAP gross profit $ 32,803 $ 30,316 U.S. GAAP gross margin 12.6 % 11.7 % Non-GAAP gross margin 12.8 % 12.4 % (1) Represents costs associated with the exit from our Scotland and Korea operations. Included in this amount for the first quarter of 2025 is severance costs associated with affected employees of $0.3 million. (2) Represents severance costs associated with our global reduction-in-force programs (other than severance costs associated with the exit from our Scotland and Korea operations, as described above). The following table presents our unaudited non‑GAAP operating income and non-GAAP operating margin and a reconciliation from GAAP operating income (loss), the most comparable GAAP measures, for the periods indicated: Three Months Ended March 27, 2026 March 28, 2025 (dollars in thousands, except per share amounts) U.S. GAAP operating income (loss) $ 2,085 $ (1,172) Non-GAAP adjustments: Restructuring plan costs (1) 549 — Share-based compensation 3,833 4,123 Amortization of intangible assets 2,078 2,078 Facility shutdown costs (2) 114 592 Other (3) — 954 Non-GAAP operating income $ 8,659 $ 6,575 U.S. GAAP operating margin 0.8 % (0.5) % Non-GAAP operating margin 3.4 % 2.7 % (1) Represents the costs associated with our Consolidation Restructuring Plan. Included in this amount for the first quarter of 2026 are: other direct and incremental restructuring related costs of $0.4 million and fixed asset charges of $0.1 million. (2) Represents costs associated with the exit from our Scotland and Korea operations. Included in this amount for the first quarter of 2026 and for the first quarter of 2025 are other direct and incremental facility exit-related costs of $0.1 million and severance costs associated with affected employees of $0.6 million, respectively. 20 (3) Represents severance costs associated with our global reduction-in-force programs (other than severance costs associated with the exit from our Scotland and Korea operations, as described above). The following table presents our unaudited non‑GAAP net income and non-GAAP diluted EPS and a reconciliation from net loss, the most comparable GAAP measure, for the periods indicated. All non-GAAP adjustments are presented on a gross basis; the related income tax effects, including current and deferred income tax expense, are included in the adjustment line under the heading "Tax adjustments related to non-GAAP adjustments." Three Months Ended March 27, 2026 March 28, 2025 (dollars in thousands, except per share amounts) U.S. GAAP net loss $ (2,469) $ (4,559) Non-GAAP adjustments: Share-based compensation 3,833 4,123 Amortization of intangible assets 2,078 2,078 Restructuring plan costs (1) 549 — Facility shutdown costs (2) 114 592 Other (3) — 954 Tax adjustments related to non-GAAP adjustments (4) 1,182 711 Tax expense from valuation allowance (5) — 337 Non-GAAP net income $ 5,287 $ 4,236 U.S. GAAP diluted EPS $ (0.07) $ (0.13) Non-GAAP diluted EPS $ 0.15 $ 0.12 Shares used to compute non-GAAP diluted EPS 35,297,664 34,206,989 (1) Represents the costs associated with our Consolidation Restructuring Plan. Included in this amount for the first quarter of 2026 are other direct and incremental restructuring related costs of $0.4 million and fixed asset charges of $0.1 million. (2) Represents costs associated with the exit from our Scotland and Korea operations. Included in this amount for the first quarter of 2026 and for the first quarter of 2025 are other direct and incremental facility exit-related costs of $0.1 million and severance costs associated with affected employees of $0.6 million, respectively. (3) Represents severance costs associated with our global reduction-in-force programs (other than severance costs associated with the exit from our Scotland and Korea operations, as described above). (4) Adjusts GAAP income tax expense for the impact of our non-GAAP adjustments, which are presented on a gross basis. (5) During the first quarter of 2025, we recorded a valuation allowance against the deferred tax assets of our Scotland and Korea operations. Liquidity and Capital Resources The following section discusses our liquidity and capital resources, including our primary sources of liquidity and our material cash requirements. Our cash and cash equivalents are maintained in highly liquid and accessible accounts with no significant restrictions. 21 Material Cash Requirements Our primary liquidity requirements arise from: (i) working capital requirements, including procurement of raw materials inventory for use in our factories and employee-related costs, (ii) business acquisitions, (iii) interest and principal payments under our credit facilities, (iv) research and development investments and capital expenditures, (v) payment of income taxes, and (vi) payments associated with our noncancellable leases and related occupancy costs. We have no significant long-term purchase commitments related to procuring raw materials inventory. Our ability to fund these requirements will depend, in part, on our future cash flows, which are determined by our future operating performance and are therefore subject to prevailing global macroeconomic conditions, such as interest rates, increased tariffs and retaliatory trade policies, geopolitical events, and financial, business, and other factors, some of which are beyond our control. We believe that our cash and cash equivalents, the amounts available under our credit facilities, and our operating cash flow will be sufficient to fund our business and our current obligations for at least the next 12 months and beyond. Sources and Conditions of Liquidity Our ongoing sources of liquidity to fund our material cash requirements are primarily derived from: (i) sales to our customers and the related changes in our net operating assets and liabilities and (ii) proceeds from our credit facilities and equity offerings, when applicable. Summary of Cash Flows We ended the first quarter of 2026 with cash and cash equivalents of $89.1 million, a decrease of $9.2 million from the prior year ended December 26, 2025. The decrease of $9.2 million for the first quarter of 2026 was primarily due to capital expenditures of $7.1 million and cash used in operating activities of $2.9 million. The following table sets forth a summary of operating, investing, and financing activities for the periods presented: Three Months Ended March 27, 2026 March 28, 2025 (in thousands) Cash provided by (used in) operating activities $ (2,917) $ 18,977 Cash used in investing activities (7,065) (18,481) Cash provided by financing activities 781 116 Net increase (decrease) in cash $ (9,201) $ 612 Our cash used in operating activities of $2.9 million for the first quarter of 2026 consisted of an increase in our net operating assets and liabilities of $12.7 million and a net loss of $2.5 million, partially offset by non-cash charges of $12.2 million, consisting primarily of depreciation and amortization of $7.7 million and share-based compensation expense of $3.8 million. The increase in our net operating assets and liabilities of $12.7 million during the first quarter of 2026 was primarily due to an increase in accounts receivable of $22.6 million and an increase in inventory of $20.5 million, partially offset by an increase in accounts payable of $27.4 million, and a decrease in prepaid expenses and other assets of $2.9 million. The decrease in cash provided by operating activities from the three months ended March 28, 2025 to the three months ended March 27, 2026 was primarily due to unfavorable changes in working capital of $23.7 million and a decrease in net non-cash charges of $0.3 million, partially offset by a decrease in net loss of $2.1 million. Cash used in investing activities during the three months ended March 27, 2026 and March 28, 2025 consisted of capital expenditures. 22 Cash provided by financing activities during the three months ended March 27, 2026 consisted of net proceeds from share-based compensation activity of $2.3 million, partially offset by net payments on our credit facilities of $1.6 million. The increase in cash provided by financing activities from the three months ended March 28, 2025 to the three months ended March 27, 2026 was primarily due to an increase in the net proceeds from share-based compensation activity of $0.4 million. Critical Accounting Estimates 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 2025 Annual Report on Form 10‑K. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Please see our 2025 Annual Report on Form 10-K (Part II, Item 7A). There have been no material changes to this information.