0001564590-20-035768.txt : 20200804 0001564590-20-035768.hdr.sgml : 20200804 20200804080039 ACCESSION NUMBER: 0001564590-20-035768 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 67 CONFORMED PERIOD OF REPORT: 20200626 FILED AS OF DATE: 20200804 DATE AS OF CHANGE: 20200804 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ICHOR HOLDINGS, LTD. CENTRAL INDEX KEY: 0001652535 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 000000000 STATE OF INCORPORATION: E9 FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-37961 FILM NUMBER: 201071000 BUSINESS ADDRESS: STREET 1: 3185 LAURELVIEW CT. CITY: FREMONT STATE: CA ZIP: 94538 BUSINESS PHONE: 510-897-5200 MAIL ADDRESS: STREET 1: 3185 LAURELVIEW CT. CITY: FREMONT STATE: CA ZIP: 94538 10-Q 1 ichr-10q_20200626.htm 10-Q ichr-10q_20200626.htm
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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 June 26, 2020

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 July 29, 2020, the registrant had 22,949,536 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)

 

 

 

June 26,

2020

 

 

December 27,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

56,969

 

 

$

60,612

 

Accounts receivable, net

 

 

104,859

 

 

 

84,849

 

Inventories, net

 

 

149,190

 

 

 

127,037

 

Prepaid expenses and other current assets

 

 

6,371

 

 

 

4,449

 

Total current assets

 

 

317,389

 

 

 

276,947

 

Property and equipment, net

 

 

45,631

 

 

 

44,541

 

Operating lease right-of-use assets

 

 

12,019

 

 

 

14,198

 

Other noncurrent assets

 

 

1,116

 

 

 

1,094

 

Deferred tax assets, net

 

 

4,354

 

 

 

4,738

 

Intangible assets, net

 

 

45,357

 

 

 

52,027

 

Goodwill

 

 

173,010

 

 

 

173,010

 

Total assets

 

$

598,876

 

 

$

566,555

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

118,278

 

 

$

131,578

 

Accrued liabilities

 

 

15,974

 

 

 

12,814

 

Other current liabilities

 

 

6,996

 

 

 

5,233

 

Current portion of long-term debt

 

 

8,750

 

 

 

8,750

 

Current portion of lease liabilities

 

 

5,359

 

 

 

5,492

 

Total current liabilities

 

 

155,357

 

 

 

163,867

 

Long-term debt, less current portion, net

 

 

195,413

 

 

 

169,304

 

Lease liabilities, less current portion

 

 

7,038

 

 

 

9,081

 

Deferred tax liabilities

 

 

210

 

 

 

210

 

Other non-current liabilities

 

 

2,668

 

 

 

2,677

 

Total liabilities

 

 

360,686

 

 

 

345,139

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Ordinary shares ($0.0001 par value; 200,000,000 shares authorized; 22,868,999 and 22,618,708 shares outstanding, respectively; 27,306,438 and 27,056,147 shares issued, respectively)

 

 

2

 

 

 

2

 

Additional paid in capital

 

 

248,882

 

 

 

242,318

 

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

 

 

(91,578

)

 

 

(91,578

)

Retained earnings

 

 

80,884

 

 

 

70,674

 

Total shareholders’ equity

 

 

238,190

 

 

 

221,416

 

Total liabilities and shareholders’ equity

 

$

598,876

 

 

$

566,555

 

 

See accompanying notes.

1


ICHOR HOLDINGS, LTD.

Consolidated Statements of Operations

(dollars in thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 26,

2020

 

 

June 28,

2019

 

 

June 26,

2020

 

 

June 28,

2019

 

Net sales

 

$

221,564

 

 

$

139,195

 

 

$

441,592

 

 

$

277,026

 

Cost of sales

 

 

192,302

 

 

 

119,662

 

 

 

383,556

 

 

 

237,270

 

Gross profit

 

 

29,262

 

 

 

19,533

 

 

 

58,036

 

 

 

39,756

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

3,509

 

 

 

2,634

 

 

 

6,831

 

 

 

5,025

 

Selling, general, and administrative

 

 

13,113

 

 

 

10,685

 

 

 

29,731

 

 

 

22,443

 

Amortization of intangible assets

 

 

3,336

 

 

 

3,202

 

 

 

6,670

 

 

 

6,339

 

Total operating expenses

 

 

19,958

 

 

 

16,521

 

 

 

43,232

 

 

 

33,807

 

Operating income

 

 

9,304

 

 

 

3,012

 

 

 

14,804

 

 

 

5,949

 

Interest expense

 

 

2,302

 

 

 

2,762

 

 

 

4,676

 

 

 

5,530

 

Other expense (income), net

 

 

2

 

 

 

7

 

 

 

(29

)

 

 

31

 

Income before income taxes

 

 

7,000

 

 

 

243

 

 

 

10,157

 

 

 

388

 

Income tax expense (benefit)

 

 

189

 

 

 

(93

)

 

 

(53

)

 

 

(1,466

)

Net income

 

$

6,811

 

 

$

336

 

 

$

10,210

 

 

$

1,854

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.30

 

 

$

0.02

 

 

$

0.45

 

 

$

0.08

 

Diluted

 

$

0.30

 

 

$

0.01

 

 

$

0.44

 

 

$

0.08

 

Shares used to compute net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

22,836,400

 

 

 

22,395,308

 

 

 

22,786,782

 

 

 

22,332,568

 

Diluted

 

 

23,066,976

 

 

 

22,663,053

 

 

 

23,099,946

 

 

 

22,596,412

 

See accompanying notes.

2


ICHOR HOLDINGS, LTD.

Consolidated Statements of Shareholders’ Equity

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Treasury

 

 

 

 

 

 

Total

 

For the three months ending June 26, 2020

 

Ordinary Shares

 

 

Paid-In

 

 

Shares

 

 

Retained

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

Equity

 

Balance at March 27, 2020

 

 

22,806,679

 

 

$

2

 

 

$

247,023

 

 

 

4,437,439

 

 

$

(91,578

)

 

$

74,073

 

 

$

229,520

 

Ordinary shares issued from exercise of stock options

 

 

8,797

 

 

 

 

 

 

111

 

 

 

 

 

 

 

 

 

 

 

 

111

 

Ordinary shares issued from vesting of restricted share units

 

 

53,523

 

 

 

 

 

 

(393

)

 

 

 

 

 

 

 

 

 

 

 

(393

)

Share-based compensation expense

 

 

 

 

 

 

 

 

2,141

 

 

 

 

 

 

 

 

 

 

 

 

2,141

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,811

 

 

 

6,811

 

Balance at June 26, 2020

 

 

22,868,999

 

 

$

2

 

 

$

248,882

 

 

 

4,437,439

 

 

$

(91,578

)

 

$

80,884

 

 

$

238,190

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Treasury

 

 

 

 

 

 

Total

 

For the six months ending June 26, 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

 

 

122,336

 

 

 

 

 

 

2,594

 

 

 

 

 

 

 

 

 

 

 

 

2,594

 

Ordinary shares issued from vesting of restricted share units

 

 

111,435

 

 

 

 

 

 

(1,386

)

 

 

 

 

 

 

 

 

 

 

 

(1,386

)

Ordinary shares issued from employee share purchase plan

 

 

16,520

 

 

 

 

 

 

350

 

 

 

 

 

 

 

 

 

 

 

 

350

 

Share-based compensation expense

 

 

 

 

 

 

 

 

5,006

 

 

 

 

 

 

 

 

 

 

 

 

5,006

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,210

 

 

 

10,210

 

Balance at June 26, 2020

 

 

22,868,999

 

 

$

2

 

 

 

248,882

 

 

 

4,437,439

 

 

$

(91,578

)

 

$

80,884

 

 

$

238,190

 

 

3


ICHOR HOLDINGS, LTD.

Consolidated Statements of Shareholders’ Equity (continued)

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Treasury

 

 

 

 

 

 

Total

 

For the three months ending June 28, 2019

 

Ordinary Shares

 

 

Paid-In

 

 

Shares

 

 

Retained

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

Equity

 

Balance at March 29, 2019

 

 

22,370,129

 

 

$

2

 

 

$

231,793

 

 

 

4,437,439

 

 

$

(91,578

)

 

$

61,463

 

 

$

201,680

 

Ordinary shares issued from exercise of stock options

 

 

17,785

 

 

 

 

 

 

303

 

 

 

 

 

 

 

 

 

 

 

 

303

 

Ordinary shares issued from vesting of restricted share units

 

 

26,175

 

 

 

 

 

 

(63

)

 

 

 

 

 

 

 

 

 

 

 

(63

)

Share-based compensation expense

 

 

 

 

 

 

 

 

1,475

 

 

 

 

 

 

 

 

 

 

 

 

1,475

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

336

 

 

 

336

 

Balance at June 28, 2019

 

 

22,414,089

 

 

$

2

 

 

$

233,508

 

 

 

4,437,439

 

 

$

(91,578

)

 

$

61,799

 

 

$

203,731

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Treasury

 

 

 

 

 

 

Total

 

For the six months ending June 28, 2019

 

Ordinary Shares

 

 

Paid-In

 

 

Shares

 

 

Retained

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

Equity

 

Balance at December 28, 2018

 

 

22,234,508

 

 

$

2

 

 

$

228,358

 

 

 

4,339,529

 

 

$

(89,979

)

 

$

59,945

 

 

$

198,326

 

Ordinary shares issued from exercise of stock options

 

 

204,700

 

 

 

 

 

 

2,207

 

 

 

 

 

 

 

 

 

 

 

 

2,207

 

Ordinary shares issued from vesting of restricted share units

 

 

50,290

 

 

 

 

 

 

(174

)

 

 

 

 

 

 

 

 

 

 

 

(174

)

Ordinary shares issued from employee share purchase plan

 

 

22,501

 

 

 

 

 

 

312

 

 

 

 

 

 

 

 

 

 

 

 

312

 

Repurchase of ordinary shares

 

 

(97,910

)

 

 

 

 

 

 

 

 

97,910

 

 

 

(1,599

)

 

 

 

 

 

(1,599

)

Share-based compensation expense

 

 

 

 

 

 

 

 

2,805

 

 

 

 

 

 

 

 

 

 

 

 

2,805

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,854

 

 

 

1,854

 

Balance at June 28, 2019

 

 

22,414,089

 

 

$

2

 

 

$

233,508

 

 

 

4,437,439

 

 

$

(91,578

)

 

$

61,799

 

 

$

203,731

 

 

See accompanying notes.

4


ICHOR HOLDINGS, LTD.

Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Six Months Ended

 

 

 

June 26,

2020

 

 

June 28,

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

10,210

 

 

$

1,854

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

11,662

 

 

 

10,460

 

Share-based compensation

 

 

5,006

 

 

 

2,805

 

Deferred income taxes

 

 

384

 

 

 

(172

)

Amortization of debt issuance costs

 

 

484

 

 

 

454

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(20,010

)

 

 

(1,284

)

Inventories, net

 

 

(22,153

)

 

 

12,633

 

Prepaid expenses and other assets

 

 

563

 

 

 

3,058

 

Accounts payable

 

 

(13,717

)

 

 

(4,176

)

Accrued liabilities

 

 

3,138

 

 

 

(706

)

Other liabilities

 

 

(750

)

 

 

(4,266

)

Net cash provided by (used in) operating activities

 

 

(25,183

)

 

 

20,660

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(5,665

)

 

 

(6,117

)

Cash paid for intangible assets

 

 

 

 

 

(8,147

)

Net cash used in investing activities

 

 

(5,665

)

 

 

(14,264

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Issuance of ordinary shares under share-based compensation plans

 

 

2,966

 

 

 

2,562

 

Employees' taxes paid upon vesting of restricted share units

 

 

(1,386

)

 

 

(174

)

Repurchase of ordinary shares

 

 

 

 

 

(1,599

)

Borrowings on revolving credit facility

 

 

30,000

 

 

 

5,000

 

Repayments on revolving credit facility

 

 

 

 

 

(8,000

)

Repayments on term loan

 

 

(4,375

)

 

 

(6,563

)

Net cash provided by (used in) financing activities

 

 

27,205

 

 

 

(8,774

)

Net decrease in cash

 

 

(3,643

)

 

 

(2,378

)

Cash at beginning of period

 

 

60,612

 

 

 

43,834

 

Cash at end of period

 

$

56,969

 

 

$

41,456

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

4,240

 

 

$

5,755

 

Cash paid during the period for taxes, net of refunds

 

$

34

 

 

$

1,624

 

Supplemental disclosures of non-cash activities:

 

 

 

 

 

 

 

 

Capital expenditures included in accounts payable

 

$

1,191

 

 

$

1,170

 

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

 

$

328

 

 

$

566

 

See accompanying notes.

 

 

5


 

ICHOR HOLDINGS, LTD.

Notes to Consolidated Financial Statements (Unaudited)

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

Note 1 – Basis of Presentation and Selected Significant Accounting Policies

Basis of Presentation

These consolidated 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.

Year End

We use a 52- or 53-week fiscal year ending on the last Friday in December. The three months ended June 26, 2020 and June 28, 2019 were both 13 weeks. References to the second quarter of 2020 and 2019 refer to the three-month periods then ended. References to fiscal year 2020 refer to our fiscal year ending December 25, 2020.

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 the fair value of assets and liabilities acquired in acquisitions, estimated useful lives for long‑lived assets, allowance for doubtful accounts, 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.

6


 

Commitments and Contingencies

We are periodically involved in legal actions and claims that arise as a result of events that occur in the normal course of operations. The ultimate resolution of these actions is not expected to have a material effect on our financial position or results of operations. Subsequent to the end of the first quarter, but before the financial statements were issued, 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, as the settlement provided evidence relating to a loss that existed at March 27, 2020.

Accounting Pronouncements Recently Adopted

In June 2016, the FASB issued ASU 2016‑13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. We adopted the standard on the first day of the first quarter of 2020, and the adoption did not have a significant impact on our financial statements.

In August 2018, the FASB issued ASU 2018‑15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350‑40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The new guidance clarifies the accounting for implementation costs in cloud computing arrangements. We adopted the standard on the first day of the first quarter of 2020, and the adoption did not have a significant impact on our financial statements.

Note 2 – Inventories

Inventories consist of the following: