ICHR

As a reminder, this call is being recorded. I would now like to introduce to you your host for today's conference, Claire McAdams, investor relations for Ichor. Please go ahead.

Thank you, operator. Good afternoon, thank you for joining today's first quarter 2026 conference call. As you read our earnings press release and as you listen to this conference call, please recognize that both contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control and which could cause actual results to differ materially from such statements. These risks and uncertainties include those spelled out in our earnings press release, those described in our annual report on Form 10-K for fiscal year 2025, and those described in subsequent filings with the SEC. You should consider all forward-looking statements in light of those and other risks and uncertainties. Additionally, we will be providing certain non-GAAP financial measures during this conference call.

Our earnings press release and the financial supplement posted to our IR website each provide a reconciliation of these non-GAAP financial measures to their most comparable GAAP financial measures. On the call with me today are Phil Barros, our CEO, and Greg Swyt, our CFO. Phil will begin with an update on our business, and then Greg will provide additional details about our results and guidance. After the prepared remarks, we will open the line for questions. I'll now turn over the call to Phil Barros. Phil?

Thank you, Claire, and welcome everyone to our Q1 earnings call. Just a few months into a multi-year growth cycle, we are already delivering upside to our outlook and demonstrating strong earnings leverage. Q1 revenues of $256 million came in at the upper end of our expectations, up 15% from Q4. Gross margins of 12.8% also approached the high end of our guidance, enabling us to more than triple our operating income versus Q4 and deliver our highest earnings per share in three years. The early investments we made in ramping labor headcount and prepositioning inventory are paying off. These are enabling Ichor to deliver strong execution for our customers and achieve growth towards the high end of our demand forecast. Demand across our core markets has further strengthened since our last earnings call.

Our visibility now extends deeper into 2026. Within this very robust demand environment, we expect Ichor to be a top performer, both in terms of growth and earnings leverage. Our Q2 forecast now reflects unconstrained demand exceeding $300 million. This is one of the steepest ramps witnessed in Ichor's history, representing growth well over 30% in just two quarters. Not only that, but with stronger visibility since our last earnings call, we continue to expect every quarter in 2026 will be a growth quarter for Ichor. We entered the year with increased momentum and a clear strategy. Our higher confidence today reflects Ichor's critical role within the WFE industry and strong progress towards our strategic objectives. The technology transitions and strategic capacity expansions underway, largely in support of AI hyperscaling, favor etch and deposition applications, which favors Ichor.

A great example of this is the 30% increase in the number of process steps required to produce leading-edge logic with gate-all-around architectures. Increased investments in gate-all-around technology are significant tailwinds for Ichor's growth. Our objective is to gain share through this cycle, and the steps we have taken to pre-position inventory and ramp labor headcount will allow us to continue to perform for our customers, and this is how we will win. Turning to an update on our strategic initiatives we introduced last quarter. Q2 is shaping up to be a major step forward in our Global Footprint Realignment. As a reminder, this initiative is aimed at driving 3 primary benefits. First, we are structurally eliminating the margin challenges we faced previously in order to drive stronger cross-cycle performance and greater predictability in our business.

Second, we are enabling more efficient, scalable, high-volume manufacturing of our Ichor-branded products, which will get us to our cost targets for these components. Third, by driving higher level of Ichor content within the systems we build, we will deliver significant improvements in gross margin flow-through and earnings leverage as revenues ramp. We have made strong progress, and I'm proud of the team, especially given the scale of the ramp we are operating in. Just a few months into the year, and we have already installed and qualified half of the planned equipment moves, which is ahead of schedule. We are now performing all manufacturing steps for our substrate product line within the same four walls within Mexico. These are the types of efficiency gains that will structurally improve our product margins and drive higher gross margin flow-through within the gas panel manufacturing business.

In our valve product line in Q1, we achieved full customer qualification to manufacture in Mexico. This significantly expands our capacity for this product line, enabling us to source internally and cut our dependence on outside suppliers. We will continue to ramp up capacity through Q2 and expect to be at full production as we exit the quarter. The success and speed of both the moves and qualifications gives us the confidence to reinitiate valve qualifications on one of our major customers, which we had placed on hold due to capacity constraints. As we exit Q2, we will begin to see the gross margin impacts of our footprint realignment into Mexico, with these moves enabling increased levels of proprietary Ichor content in the gas panels we make.

As we move through the remainder of the year, we will be ramping Malaysia, which will drive a richer mix of machining revenues. Driving higher volumes of machining revenues and completing cost reduction initiatives in our footprint realignment are the final 2 steps in achieving our near-term gross growth margin targets of at least 15%. As a reminder, while we complete the ramp-up of Mexico, we are temporarily increasing external supply to ensure strong, consistent delivery in our integration business. Taking all of this into account, today we are guiding Q2 revenues of approximately $300 million ±$10 million, and sequential improvement in gross margin from Q1 to expected range of 13%-14%. Beyond Q2, we continue to expect approximately 100 basis points per quarter in gross margin expansion as we complete our transitions into the second half.

This level of gross margin expansion continues to support our expectation that gross profit dollars will grow around twice the rate of revenues as we move through the second half. On today's call, I will reaffirm our stated target to exit 2026 delivering 35% Ichor-branded content within the systems we build. As a reminder, we exit 2025 delivering systems with 25% Ichor-branded content, up from 15% in 2024. Our next step function increase in Ichor-branded content is in flow control, which is progressing to plan. We see 2026 as a qualification year, with first meaningful flow control revenues in 2027.

We expect that bringing the capacity online in both Mexico and Malaysia, along with flow control qualifications, will enable us to reach our goal to be capable of providing up to 75% of Ichor-branded content within the systems we build by year-end. Finally, I will take the opportunity to reiterate our strategic priority to leverage our machining capabilities into high-growth markets outside of semiconductor. This business represents less than 10% of our revenues today, but we anticipate this will grow at a rate faster than our WFE this year, driven by a number of key positions in commercial space and defense markets. To close, we have made significant progress on our strategic initiatives and all within a backdrop of rapidly growing demand. We remain confident that Ichor is well-positioned to capitalize on the ramp and deliver strong earnings leverage through this cycle.

With that, I will now hand it off to Greg.

Thanks, Phil. Before I begin, I would like to emphasize that the P&L metrics discussed today are non-GAAP measures. These measures exclude the impact of share-based compensation, amortization of acquired intangible assets, non-recurring charges, and discrete tax items and adjustments. There is a useful financial supplement available on the investor section of our website that summarizes our GAAP and non-GAAP financial results, as well as a summary of the balance sheet and cash flow information for the last several quarters. First quarter revenues of $256.1 million came in at the upper end of our guidance range, up 15% sequentially, reflecting continued demand momentum and strong execution as volumes ramped throughout the quarter.

Gross margin increased to 12.8%, up 110 basis points sequentially and 30 basis points above the midpoint of guidance, driven primarily by incremental factory leverage on the higher revenue levels in our integration business. Operating Expenses in the quarter were aligned with our forecast at $24.1 million. Operating income for Q1 more than tripled compared to Q4 to $8.7 million or 3.4% of revenue, demonstrating meaningful operating leverage as volumes ramped. With both interest and tax aligned with expectations, earnings for the quarter were near the high end of guidance at $0.15 per diluted share based on 35.3 million diluted shares outstanding. Positive cash flow generation from the P&L increased significantly in the quarter, with EBITDA of nearly $14 million.

In the early stages of what we expect will be a sustained multi-year ramp, we are making incremental investments in inventory in support of our customers. As a result, cash from operations was a use of $2.9 million. Capital expenditures for the quarter were $7.1 million. We are managing our CapEx investments towards approximately 3% of revenue, so we expect this CapEx level to trend up modestly as we move into the second half of the year. Which brings us to the balance sheet. Given our current levels of investments in inventory and CapEx, cash and equivalents totaled $89.1 million at the end of the quarter, a decrease of $9.2 million from Q4. DSOs increased modestly to 33 days, and inventory turns improved to 3.7, reflecting improved throughput as volumes increased.

Total debt at quarter end was $122 million, and our net debt coverage ratio stands at 1.6. Now turning to our guidance for Q2 2026. As Phil mentioned, we are anticipating a steeper revenue ramp for Q2 compared to our expectations a quarter ago. We anticipate revenues in the range of $290 million-$310 million, which at the midpoint represents sequential growth of 17% and a year-over-year increase in revenue volumes of 25%. Our gross margin guidance for Q2 is a range of 13%-14%. As Phil noted earlier, we continue to expect gross margin improvement of 100 basis points per quarter through the second half of 2026. Our guidance for Operating Expenses this year is largely unchanged from last quarter.

We continue to drive disciplined cost management across the organization in support of higher revenue volumes. We are managing to a target of only 5%-6% OpEx growth for the full year. This reflects a relatively consistent run rate of approximately $25 million beginning in Q2, slightly up from Q1's level as a result of higher variable compensation forecasts on the improved outlook for the year. The midpoint of our guidance for revenues, gross margin, and operating expenses in the current quarter indicate the highest level of operating income reported since fiscal 2022 and an increase of nearly 80% from Q1, reinforcing the strong earnings leverage expected as we continue to ramp revenues. Expectations for interest and tax this year are unchanged since last quarter.

We anticipate approximately $2 million per quarter in total interest and other income and expense, and our assumed effective tax rate continues to be in the range of 20%-25%. Finally, our EPS range for Q2 of $0.25-$0.35 reflects our expectation for a diluted share count of 35.5 million shares. In summary, Q1 reflects improving profitability, strong operating leverage, and disciplined cost control as volumes accelerate, and we believe we are well positioned for continued progress through the remainder of 2026.

Thank you. We will now be conducting a question-and-answer session. The first question is from Brian Chin from Stifel. Please go ahead.

Hi there. Good afternoon. Thanks for letting us ask a couple questions. This first question, impressive job in terms of the sequential growth Q1 and then the outlook, maintaining sort of a mid-to-high teens sequential ramp at this point. Maybe can you walk us through sort of the, some of the puts and takes in the second half of the year in terms of ramping Malaysia, in terms of product mix, and kinda how that distills down to what level you can sort of sustain sequential growth into the back half of the year?

Yeah. If you follow our customers, they're forecasting, say, a 25% growth year-over-year. We're gonna project that at this point, in terms of how much we think we're gonna grow for 2026 over 2025. What I would say is, at this point last quarter, I would have guided 26-27 or $265 million-$270 million for Q2. Now we're guiding $290 to $310. As you can imagine, we're seeing a lot of growth, a lot of movement and a lot of, you know, puts and takes, if you will. We are seeing a lot of movement in our forecast.

I would say my visibility today is stronger today than it was a quarter ago, and it'll be stronger, I believe, a quarter from now than it is today.

Great. That's helpful. Thinking about the margin, gross margin progression in the back half of the year, when you think about the 100 basis points Q3, 100 basis points Q4, can you maybe sort of walk through how much of that is volume related, how much is mix inclusive of increased vertical content?

Yeah. In terms of percentages, what I would say is in general, think of our gross margin growth as coming from, you know, it's as much event-driven as it is volume-driven. I talk about the global footprint realignment, that's a big driver of our of our cost savings as well as our margin accretion as we move through the year. I would say they're pretty closely equally weighted in terms of gross margin impact. I would say that volume leverage is about 50% of it and our cost reductions are about 50% of it.

Great. Great. Thank you.

Thank you.

The next question is from Craig Ellis from B. Riley Securities. Please go ahead.

Thanks for taking the questions, and congratulations on the good resultant guidance. Phil Barros, I wanted to start with more of a qualitative question on where Brian Chin left off. It was the beginning of the year when you outlined a four-point plan to really drive much better gross margins to 15%, and it sure seems like the business is solidly on track for that. Can you talk about how happy you are with where you see the business executing in the different company controllable areas that you're focused on? Where are you happier? Where do you need to get better performance to be real confident in that 100% per quarter in the back half of the year?

Yeah. Well, 100% would be great. I think you said 100 basis what you meant. Yeah, I would say that in general, I am very happy with the progress the team's making. I would say, we're on track, if not ahead of schedule in most of the initiatives. That's tough to do in this type of environment, obviously, as we're ramping up.

revenues at the same time as doing a strategic transformation, it's very impressive for me to see the team really execute at this level. I would say in general, I'm very confident and very happy with where the team's at. If you looked at where I had risk in terms of the transformation in the Q1 timeframe, it was getting customer qualifications in Mexico, and it was getting e-beam welding up and running in Mexico. Both of those are behind us. I'm at a much stronger, much more confident position than I would have said about a quarter ago.

That's really helpful. Just looking ahead to what sounds like a really strong view for the second half of the year, and I think most everybody's really constructive for robust calendar 2027 year-over-year growth. Can you just talk about your comfort with capacity upside beyond the level that you're guiding to in the second quarter so we can get comfortable that as demand continues to improve, Ichor's going to be able to meet that demand? Thank you, Phil.

I would say that the two major drivers or pacers for our output right now would be supply chain, number one, and labor headcount, number two. I would say we are well-positioned brick-and-mortar wise and clean room wise and infrastructure wise, which to me are the, you know, kind of the long lead items, if you will. I would say from a supply chain standpoint, we have boots on the ground that are, you know, there's always multiple suppliers that pop up in these types of ramp periods. We have boots on the ground as well as increased inventory levels in certain areas where we saw risk. I feel pretty good about that. In terms of ramping up headcount, I would say we are well along the path there.

I feel very good about where we are in terms of headcount as well. I would say in general, we have the ability to ramp. What I would say is, in terms of brick-and-mortar, in terms of headroom and room for us to grow, we could more than double what we did last year in terms of brick-and-mortar, so I'm not worried there. Like once again, it's gonna be headcount and supply chain that's gonna pace us going forward.

Thank you.

Thank you.

The next question is from Christian Schwab, from Craig-Hallum Capital Group. Please go ahead.

Great. Thanks for taking my question. Just to follow up on that last statement, it, you know, more than double revenue as far as, you know, given your global, you know, realignment in manufacturing. So in aggregate, do you believe that you have the potential, if the end market demand, you know, remains robust, as expected on a multi-year basis that, you would, you know, have, you know, $1.8 billion to roughly $2 billion in revenue capacity on a yearly basis? Did I hear that kind of correctly?

Yeah. I would say from a brick-and-mortar and kind of fixtures and equipment standpoint, I would say we have some areas where we need to make investment. There's some equipment in the second half of the year that we're gonna be positioning to grow to those types of levels. What I would say is the long lead items like clean room, overhead, you know, building space, brick-and-mortar, we're in a very good position there, especially with our new facility put in place in Malaysia that we turned on last quarter.

Great. Then congrats on the gross margin progression expected throughout the course of the year. As you increase your branded products or your vertically integrated products, however you wanna refer to them, into your gas boxes, do you have a yet an aspirational goal of where you'd like to end gross margins at the end of 2027?

We haven't drawn out the model to at the end of 2027 at this point. I would. It's a little bit early to do that, as you would know, as we enter or, you know, one quarter into 2026, it's a little early to guide 2027 'cause a lot of that's gonna be volume driven as well, as you know. I do expect 27 to be a growth year, but even with that, I'm gonna be a little bit shy on guiding 2027 at this point.

My last question, just on the sequential progression, I know the mix of business of you and your largest public competitor are different. Do you anticipate, you know, after such a very strong start in the first half of the year and 17% sequential mid, you know, guidance at the midpoint from March to June, would you expect double-digit sequential growth as we go forward, or would you assume that that would potentially be more high single digit?

I would say we could see double-digit growth in the second half, in total. I would say at this point it's gonna be our supply chain that's really gonna gate us, in terms of revenue growth. I'm a little bit cautious on the second half at this point until we have good visibility there. What I would say is, we're executing really well. The reason I wanna say that is I think that's why we're seeing, a very big pickup in Q2, is we're not leaving a lot of revenue behind, if you know what I mean.

We're not rolling a lot of revenue from quarter over to quarter. That's gonna show a growth profile that kind of leads our customers and goes ahead of our customers because we deliver before our customers receive.

Great. Thank you. No other questions.

The next question is from Charles Shi from Needham & Company. Please go ahead.

Hi. Thanks for taking my question, Phil and Greg. First, congrats on the very strong Q2 guide, but obviously, you know, a lot of people in my seats are gonna ask you what's your capacity, max capacity right now. I think you previously mentioned about potentially getting to that 20% gross margin at $400 million per quarter. To me, that's a read of, you're implying maybe $1.6 billion capacity. I don't know if you need incremental CapEx to get to that, but what's the thought on getting beyond $1.6 billion capacity? What would be the next milestone, and how much CapEx do you think are you gonna need? That's the first question. Thank you.

Yeah. Let me just be clear that we believe we have enough brick-and-mortar capacity today to go well above $2 billion. Just to be clear, it's not just the $1.6. After that, it becomes very driven by kind of equipment. If you look at the Ichor-branded products, obviously, there's a lot of equipment that's required to build those. That would be the one area where we'd need to invest CapEx. That's what we've kind of alluded to when we said it's gonna be a second half CapEx heavy. That's coming in as we fill out the machining capability within Malaysia. That's really what's driving that.

Once we, like Greg talked about during his prepared remarks, we're really driving towards that kind of 3% of revenue CapEx rate.

For this year.

For this year.

Got it. Is it fair to say that to get to, like, maybe $1.6 billion, the capacity is already in place. Like, it's more about above $2 billion that we're, you know, you're gonna need more equipment, et cetera, or maybe I misunderstood some of the commentary? Thanks.

Yeah. What I would say is, in order to get, you know, to keep the 35%-75%, Ichor-branded content within a $1.6 billion, we need a little more equipment. From a brick-and-mortar, from an overhead, from a cleanroom perspective, I would say we're well positioned for that, to be around $2 billion.

Got it. Got it. May I ask you about the demand signal? One thing I noticed when you talk about Q2, you're talking about demand. Unconstrained demand is already above $300 million. What kind of visibility you have right now? How much are the, like, a PO back, let's say, hard commits already from your customers? Like, how many quarters you can see that? You know, the forecast, where do you see the end of your visibility as we speak right now? Thank you.

Yeah. I always say that we have good visibility for about 6 months. I'd say we have hard PO coverage for about a full quarter, and about 6 months of great visibility. What I can tell you is that our customers do give us kind of soft guidance or, you know, kind of soft visibility in past that. I would say that right now, as they've signaled to you, they're signaling growth into 2027. We're preparing ourselves to capitalize on that growth into 2027.

Got it. Maybe, maybe last question from me. I noticed from the financial soft segment, the revenue from Europe was a little bit light in the quarter. I wanna, with that data point, would like to ask you what's the latest you see on the lithography side of the business, what's the, what's the expectation this year in terms of growth? Understandably, you talked a lot more about dep and etch, but I wanna get the thoughts on the litho side of the business. Thanks.

Yeah. Yeah. I would definitely say, etch and dep are growing faster. They're kind of leading the league right now. I'd say that they're ahead of the litho business. We talked about last quarter how our customer has some level of inventory they need to burn through. We do see them burning through that inventory in Q3. We start to see a pickup in the, in the fourth quarter. I would say it's a little bit of a headwind in Q3, kind of a tailwind in Q4, is the way I would think about it. Once again, that's more on the level of inventory that they're holding versus anything to do with their business in particular.

Thank you, Phil. Appreciate.

No problem. Thank you.

The next question is from Krish Sankar from TD Cowen. Please go ahead.

Hi, this is Rob Mertens online for Krish. Thanks for taking my questions, and congrats on the strong quarter and guidance. Maybe first off, I'll just piggyback on Charles Shi's question and ask if there's any changes in your view in terms of silicon carbide demand or from aerospace and defense customers compared to a quarter ago.

Yeah. I would say aerospace and defense are growing very well. If you can imagine, conflict and things of that sort, unfortunately do drive increase in need for defense spending. We're seeing some impacts of that. Obviously our other commercial space business is also growing. What I would say is a lot of the R&D work that we were doing for that commercial space business is now converting into hard POs, we're seeing some strong growth through this quarter. Looking pretty good there. I would say silicon carbide is pretty light, I would say we're not seeing a major return in that as we speak today. I would say that's been pretty steadily down since it was last year.

Okay. Thank you. That, that's helpful. I know some of this had been asked before, but I just wanted to dig into the strength you're seeing from your largest customers. I mean, you mentioned visibility has improved, and that sales should grow sequentially through the back half of the year. Would you expect the mix shift to shift towards more of your high margin components and in-source products through the back half? Or could there be some near term impact due to the high growth of the gas panels this year?

I would say that the reason that we will see growth in gross margin sequentially from quarter to quarter is we're gonna be able to ramp up and fulfill some of our own internal source parts and a higher percentage of those. Right? As we move into the second half of the year, I expect us to fulfill more of our Ichor-branded products within our gas boxes that we build. That will be a good tailwind as we get into the second half of the year. That's, you know, all predicated on ramping up our global footprint realignment and what we're doing in Mexico and Malaysia. We do expect that to come online in the second half and be fully running in the second half of the year.

Got it. Thank you.

No problem.

The next question is from Edward Yang from Oppenheimer. Please go ahead.

Hey, Phil. Thanks for the time. The first question's more of a clarification question. Did you say that you expect 2026 year-over-year revenue growth of 25%? If that's the case, you know, that would imply a bit less than double digit sequential growth in the second half, but just wanted to clarify that.

No, we're definitely looking at double-digit sequential growth in the second half of the year for sure.

Okay. That's helpful. Thanks. You know, given that the industry's supply constraint, are you pretty much, you know, set in terms of your 2026 growth outlook? Or are there still bottlenecking opportunities that could provide you revenue upside?

What I would say is that there is definitely bottlenecking opportunities that can give us revenue upside, where we are seeing some constraints, some noise in the supply chain as we move through from Q1 into Q2. With that said, I would say that we've got a good handle on it. I think we're well-positioned in terms of inventory in order for us to execute, and I think we've been executing at a high level for our customers.

Okay. Just final one on your innovation pipeline. You know, could you speak to any new product or module wins, you know, beyond, you know, up cycle opportunities?

Yeah. What I would say is that we're making great progress in the flow control, and one of the things I wanna just highlight here is I think there could be questions of whether or not we can get flow control qualified during a ramp like this. What I do wanna say is a ramp like this is the perfect opportunity to get qualified. If you look at some of the constraints we're running into, it happens to be in the flow control space. I think there's an open window for us to capture share. We need to be ready, and we need to be available for that window of opportunity that I'm talking about.

Thank you.

Okay.

There are no further questions at this time. I would like to turn the floor back over to Phil Barros for closing comments.

Yeah. Thank you, operator, and thank you, everyone, for joining our call today. I wanna once again thank our employees who have taken on this ramp and our strategic transformation all at the same time and executing at a very high level. I have complete faith in the team's ability to execute and could not be more proud to be leading this team along this journey. You can feel the momentum and the energy within Ichor. I look forward to our next update at our Q2 call in August. In the meantime, please reach out to Claire to arrange any follow-up requests for meetings. Operator, you may conclude the call.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Good day, ladies and gentlemen, and welcome to Ichor Holdings, Ltd.'s Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance, 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 Holdings, Ltd. Please go ahead.

Thank you, operator. Good afternoon, and thank you for joining today's Fourth Quarter and Fiscal 2025 Conference Call. As you read our earnings press release and as you listen to this conference call, please recognize that both contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control and which could cause actual results to differ materially from such statements. These risks and uncertainties include those spelled out in our earnings press release, those described in our annual report on Form 10-K for fiscal year 2024, and those described in subsequent filings with the SEC. You should consider all forward-looking statements in light of those and other risks and uncertainties. Additionally, we will be providing certain non-GAAP financial measures during this conference call. Our earnings press release and the financial supplement posted to our IR website each provide a reconciliation of these non-GAAP financial measures to their most comparable GAAP financial measures. On the call with me today are Phil Barros, our CEO, and Greg Swyt, our CFO. Phil will begin with an update on our business, and then Greg will provide details about our results and guidance. After the prepared remarks, we will open the line for questions. I'll now turn over the call to Phil Barros. Phil?

Thank you, Claire, and welcome, everyone, to our Q4 earnings call. As we enter 2026, there's a lot to be excited about. Ichor Holdings, Ltd. is entering its next phase of growth with increased momentum and a clear strategy. Since we last spoke in November and again during our January webcast, customer demand in our primary served markets has continued to strengthen. Our current visibility is that we are now operating in a sustained demand ramp, driven by fundamental technology transitions and strategic capacity additions across our core markets. We're seeing increased adoption of gate-all-around architectures, accelerating growth in high bandwidth memory, and rising capital intensity in advanced logic and advanced packaging. These transitions increase etch and deposition intensity, and this is the segment of the market where Ichor Holdings, Ltd. is most highly levered. Our objective is to win share through this cycle, and being highly responsive to our customer demand is a core aspect of meeting that objective. Ensuring adequate supply and supporting our customers' strong ramp has been my number one focus since taking over as CEO. As a result, we are ramping labor headcount in our integration business and prepositioning inventory to enable us to address our customers' accelerating demand with strong, predictable execution. In addition, our recent design wins in commercial space are beginning to translate into meaningful revenue. We expect these design wins to convert into revenue growth that could outpace semiconductor growth this year. Based on current visibility, we see every quarter in 2026 as a growth quarter for Ichor Holdings, Ltd. Turning to our results. As provided on January release, Q4 came in largely as expected. Revenue was $224 million, above the midpoint of outlook. We finished fiscal 2025 with $948 million in revenue, up 12% year over year. This solid year-over-year growth was driven primarily by strength in etch and deposition and was partially offset by the softening build rates of EUV as well as decreased demand in certain trailing edge markets. Our commercial space business grew significantly in 2025, while still a small portion of our overall revenues, it has grown to the point where our fifth largest customer is now outside the semiconductor industry. Looking forward, expect growth in nearly every application with nearly every customer as we progress through 2026. Our outlook has further strengthened since entering the year, and our guidance today is for first-quarter revenues in the range of $240 million to $260 million. At the midpoint, this equates to double-digit growth from our Q4 trough. Based on current visibility, we expect sequential growth every quarter this year, leading to what we expect to be a strong growth year for Ichor Holdings, Ltd. During our January webcast, I introduced our key strategic initiatives for 2026. And I will now review the progress being made. First is our global footprint realignment. Over the past few quarters, our investments have been focused on expanding our Mexico machining capacity and building out our new manufacturing center in Malaysia, which is our largest facility in Ichor Holdings, Ltd.'s history. The Mexico expansion will be complete later this year, and Malaysia just began operation last month. These locations will be our high-volume manufacturing centers for Ichor branded products and will give us the capacity needed to meet the demand ramp we are now seeing. To enable this transition, we are in the process of relocating a portion of our machining assets to these critical sites, which will temporarily reduce our capacity for these components. While these transitions are important, they will not gate our ability to support our customer demand. The realignment of our global footprint touches all three of our strategic focus areas for 2026 and is aimed at strengthening our supply resiliency, ensuring business continuity, and bringing us closer to our customers. This realignment is also a key driver for us achieving our cost targets for Ichor branded products. It will also structurally eliminate the primary sources of margin and rent challenges we faced in 2025. Beginning Q2, we expect gross profit dollars will grow around twice the rate of revenues as we move through the year. We expect our global footprint realignment to begin driving meaningful margin improvement by midyear. This translates into significant earning leverage expected in the quarters ahead. Before closing, I want to touch on our product strategy in creating a differentiated Ichor Holdings, Ltd. 2026 is a milestone year for Ichor Holdings, Ltd. By year-end, we expect to have products in place to enable us to reach our long-stated objective of having Ichor branded products capable of supporting up to 75% of the content within the systems we make. Reaching this capability reflects our continued transition from an integration company to a product company and ultimately a key technology enabler for our industry. This level of vertical integration gives us the tools and technologies required to support our customers as they move into the Angstrom era, where they are adding and removing material one molecule at a time. As our customers enter this era, our goal is for Ichor Holdings, Ltd. to outperform by delivering technology, products, and execution required at this level of precision. With that, I will now hand over to Greg.

Thanks, Phil. To begin, I would like to emphasize that the P&L metrics discussed today are non-GAAP measures. These measures exclude the impact of share-based compensation, amortization of acquired intangible assets, nonrecurring charges, and discrete tax items and adjustments. There is a useful financial supplement available on the investor section of our website that summarizes our GAAP and non-GAAP financial results as well as a summary of the balance sheet and cash flow information for the last several quarters. Fourth-quarter revenues were $223.6 million, above the midpoint of guidance, but modestly down from Q3. We believe Q4 represents the trough period during this cycle, with the recent softening in certain end markets and applications already showing signs of recovery. Gross margin for the quarter of 11.7% was 70 basis points above the midpoint of guidance, reflecting modestly better execution against the lower revenue volumes and unfavorable product mix during the quarter. Operating expenses for Q4 were slightly lower than forecast, at $23.4 million, and operating income was $2.7 million. As expected, our net interest expense for the quarter was $1.7 million, while our non-GAAP net income tax expense was slightly lower than forecast at $400,000. Our resulting earnings for the quarter were at the upper end of our expectations at $0.01 per share. Turning to the balance sheet, our cash and equivalents totaled $98.3 million at the end of the quarter, a $6 million increase from Q3. Working capital improvements generated $9 million of positive cash flow, and after $3 million of capital expenditures, free cash flow for the quarter was $6 million. DSOs for the quarter were slightly better than Q3 at 29 days, and inventory turns remained constant at 3.3. Our year-end balance of total debt outstanding was $123 million, down from $129 million a year ago. Our net debt coverage ratio currently stands at 1.7. Now I will discuss our guidance for 2026. As Phil mentioned, our revenue outlook has strengthened year to date. With anticipated revenues in the range of $240 million to $260 million, we expect gross margins to be in the range of 12% to 13%. Q1 operating expenses are projected to be approximately $24 million, reflecting the seasonal impact of payroll adjustments, audit fees, and other variable compensation costs. We expect the strong revenue ramp ahead for 2026 will be supported by a relatively consistent OpEx run rate of $24 million, which for the full year equates to an increase of about 5% compared to fiscal 2025. Net interest expense for Q1 is expected to be approximately $1.7 million, and we expect this level to be relatively consistent throughout 2026. For modeling purposes, net interest expense for 2026 should be approximately $7 million. We expect to record a Q1 tax expense of approximately $1.1 million. As you update your models for 2026, our assumed effective tax rate is currently expected to be in the range of 20% to 25%. The increase in our anticipated non-GAAP effective tax rate is attributed to the geographic distribution of our profits this year and the sunsetting of our Singapore pioneer status in early 2026. Finally, our EPS range for Q1 of $0.08 to $0.16 reflects our expectation for 35.1 million diluted shares outstanding. Operator, we are now ready for questions. Please open the line.

Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. To remove yourself from the question queue, press the pound key. In the interest of time, we ask that participants limit themselves to one question and one follow-up. One moment while we poll for questions. Our first question is from Brian Chin with Stifel.

Hi, great. Thanks for letting us ask a couple of questions and good afternoon. Maybe, Phil, the first question relative to the update you gave last month on Q1 revenue, your new midpoint is about $10 million higher. Can you firstly discuss sort of what has improved, I guess, since then? And also, when you think about the full year, if WFE forecasts for the industry are coalescing around 15% to 20% growth, let's say, how do you expect to grow relative to that benchmark?

Okay. Let me answer your first question first. In terms of what we're seeing in the first quarter versus what we saw first week, let me just put it this way. Every week, we get an updated forecast, and every week, we're seeing strengthening demand. So we are becoming more and more bullish on the market as we move through the year. And I would say that we're seeing a lot of movement, so that's why we're not gonna, you know, guide for the whole entire year. But I would say that your range of around 15% to 20% is kind of where we're coalescing as well. We think we're well set up to be in that range, if not outperform.

Okay. That's really helpful then. In terms of gross margins, you also published some slides last month that are very helpful, sort of crosswalk to potential 15% gross margin, sometimes second half at a $250 million plus revenue level. You're kind of there sooner, right? Point about the cycle strengthening. In terms of capitalizing on some of those attributes that get you from 11% gross margins to 15%, what's sort of embedded in that initial Q1 guide? And how quickly do you take down some of those other parts of it, including, I think it was like 160 basis points from production levels. You're kinda there already, and then you have some others from the insourcing and other items.

Yeah. As I kinda talked about during the prepared remarks, there's a couple things that we're doing there. I would call our short term or transient at this point. First things first is removing some of our capacity from one site to another. In particular, removing stuff from one of our machining facilities to another machining facility. To really set us up for long term success. I would say that that's gonna be in place before we exit the first half of the year. So that's gonna be a major benefit as we exit that. As you can imagine, that also brings down some of our capacity for our internal supply. So that's a short term once again, hit that we would or headwind that we would see in the first half of the year. Once again, we expect that to be flushed through the system as we exit the first half of the year. Hope that answers your question.

Got it. So you still think that 15% second half is sort of a good target and sort of a linear progression or maybe kind of incremental in 2Q and then sort of a pickup second half?

Yeah. That's how I would model it.

Thank you. Our next question is from Craig Ellis with B. Riley Securities.

Yes. Thanks for taking the question and congratulations on the nice print and the solid guide team. Phil, I wanted to start just by going back to your comments on sequential growth through the year. We've heard some companies express that the year will still be significantly back half weighted. As you look at sequential growth, can you talk about what your half on half expectations are? And then inside of the growth view that you have, we wanted to see a much higher mix of components and other higher margin products. Do you see an opportunity for that to start to kick in at some point during the year, or will things be much more gas panel oriented this year?

Yeah. I would say that the first half is gonna be heavy gas panel related. And as we move into the second half of the year, a lot of our growth in our gross margin is gonna come from increased component supply. So that's actually one of the major drivers of that first half versus second half margin profile. In terms of revenue, I would still say it's second half weighted. But we are seeing a lot of movement into the first half and a lot of momentum into the first half. I wouldn't call that pull ahead. What I would call that is just additional demand pulling forward.

That's helpful. And then can you just go further on the Malaysia business relocation? Given the strength of demand that you're seeing, can you just provide some points that investors can look to that would give comfort that that wouldn't have any adverse impact on either revenue execution or COGS and expense execution?

Yeah. I'd actually say that part of our headwind in the first half is because we did turn on the facility. So you could think of that as a headwind in the first half. So that's baked into our Q1 guide. What I would say is that's a facility that's two miles away from our current facility, which is, I would say, our second largest facility today. So it's not too far away from our current facility that builds essentially every weldment for every factory that we have. So it's a strong factory for our business. What I would say is what we're moving to Malaysia is additional capacity. Right? As we move through '26 and into '27, we believe that we're gonna see a continued ramp. And we're gonna need additional machining capacity in particular and capacity within our components business. And that's a lot of what we're putting into that facility. That's where last year, we spent a lot of our CapEx. It was in standing up that particular facility. I would say that the headwinds are baked into Q1. And we really see the tailwinds in 2027.

That's helpful. Thank you, Tom. Good luck.

Our next question is from Krish Sankar with TD.

Hi, thanks for taking my question and congrats on the really strong results. Phil, the first question I had for you on the March guidance, really impressive growth, almost 12% sequentially. Is there a way to dissect it both by technology? Is it coming from Depo, Rich, or Little, and also by end markets? Like NAND or DRAM or foundry. Any color on March would be helpful. And then I have a follow-up.

Yeah. I would say that a majority of it's coming from Depenet. So that's the vast majority of the growth we're seeing this quarter. We are seeing a slight increase in our non-semi business. I would say that EUV is pretty well flat quarter over quarter. But we do expect that to start picking up later this year, kind of late in the year. In terms of mix of technologies, I would say it's pretty it's I think the short answer to that is yes, because everything's growing at this point. And that's the reason a lot of people are calling this a super cycle is we're seeing every segment of our market grow, and grow significantly, and that's really what's driving, you know, the positive trajectory as we go into '26.

Got it. Got it. And then on the gross margin comments, if I heard it right, you kind of said that gross profit dollars should grow at two times the rate of revenue growth. And it's also more second half weighted. How much of it is really like the gross margin growth is coming from revenue leverage versus insourcing?

Yeah. Hey, Chris. It's Greg. So, you know, the revenue growth the margin growth is coming through actually a combination of the overall first half is as Phil said, you know, really the machine deployment that's hindering a little bit of our first half margin profile. And so that'll start to ramp as those tools come online in the second half. So you can call that incremental volume leverage, getting those tools up and running and getting the leverage out of that. And then the second thing is increasing our machining and components mix strengthening. As those tools come online and we're delivering those products. And then finally, our non-semi business is also as we're going into the year, that's strengthening, and that will also bring some flow through in the second half of, on the non-semi business.

Yep. So let me just add one more thing on that, Greg. Don't mind? Yeah. What I would say is in my prepared remarks, I talked about systematically eliminating some of the margin challenges we faced last year. What I mean by that and just to be quite frank is in order to meet our cost targets on our products, getting these into the new factories, once again, these are factories that in particular, in Mexico has already stood up, is running pretty high volumes. We're building out and finishing out the build-out there. Very high confidence level that that's gonna come through. So little risk there. Little to no risk there. I would say Malaysia is a little higher risk in terms of qualifications, but that's, once again, that's more to get volume out than it is anything else.

Got it. Got it. Thanks, Sung. Thanks, Greg.

Our next question is from Charles Shi with Needham and Company.

Maybe the first one, so you talked about the view is sustained the ramp of the business. Wonder if you can characterize your current demand visibility, how far out it is right now. As of today. I recall you to say you have pretty good view about within that the next six-month window. Is it further out that you see anything for 2027 at this point? Thank you.

Yeah. What I would say is, typically, our six-month window is pretty hard. In terms of we know what customers are gonna those are gonna go to and what that demand profile looks like. So you're exactly right. Six months out is very solid. And what I would say is that with our current visibility, if you look at what our Q3 and Q4 outlook looks like in terms of what our customers are telling us, what they're slotting in inside their demand windows, at this point in time, it's very solid in the second half compared to what you would normally see walking into the year. So that's why, you know, we have a lot of confidence in the second half of the year. And then, obviously, you hear it from our customers directly. They're talking about what they're seeing in 2027. I would say that our view on 2027 is very similar to what they say.

Thank you. Our next question is from Linda Amwali with D. A. Davidson.

Hi, guys. Thank you for letting us ask questions. My first question was a follow-up on the litho business. I think you said that you were expecting like, flattish quarter over quarter and then to pick up later in the year. I want to assume that the challenges given the inventory actions that your customer have been resolved, and maybe some of the end market demand trajectory that wasn't favorable is not favorable, or what has this been changing that business?

Yes. I'd say two things. First is we have seen that customer as they guided that they're gonna be starting to see a pickup in orders. And so we expect to see a similar level of pickup in orders. What I would say is that they do have a level of inventory that they need to digest. Based on our current visibility, we think they will digest that by roughly Q3 this year. Which would show some uptick in Q4. There's still a little bit of unknown there, so I would caution that a bit. But with that said, I do believe based on their feedback and what they've told us and what they're guiding, that they do expect to see growth in the second half of this year, entering into next year.

Okay. Got it. And then, going back on the broader industry demand, DRAM and NAND prices seem to be surging. Are you looking at this as mostly driven by capacity shifts toward AI applications, or are there any other drivers that you guys can call out?

Yeah. I would say AI applications are definitely the drivers. Obviously, there's a lack of capacity in the DRAM and NAND, and that's driving a lot of demand profile we're seeing. We also see foundry and logic also being strong this year. So we're seeing, like I said before, really across the board, every one of the major aspects of our market. Strong and continue to strengthen.

Got it. Thank you for your time.

Our next question is from Dave Dooley with Steelhead Securities.

Yes. Thank you for taking my questions and congratulations on a nice quarter and outlook. I guess the first question I have is and you've kind of addressed this, but I was wondering about the inventory levels at your two biggest customers and you know, what the situation with that is. And, typically, at the beginning of cycles, I think you might grow a bit faster than your two big customers just because they start to replenish inventory. And I was wondering if that's what you see unfolding during '26 and '27.

Yeah. The way I would put it is our revenue forecast or what we're forecasting is starting to match what they're saying, which is a good indication that inventory levels are coming down. And inventory levels need to be replenished. And that's kind of what we're seeing in terms of customer demand and what they're pointing towards us. Remember, the bulk of our business, which are gas panels, there's not a whole lot of inventory that's held on those systems. I would say that the one exception would be that EUV customer where it's a non-configurable system, it's the same every time. So they can build up an inventory level, which they can hold on to. What I would say is we're starting to match what our customers are saying, which is a good indication to me that the inventory has really burnt through in terms of the last cycle.

Okay. And then, I think you mentioned in your prepared remarks, I think in the press release, that you expected to gain share in '26 and '27. Was wondering if you might help us understand what areas that you will gain share in.

Yeah. So I think I mentioned it during my January webcast, but one of the major focuses little difference between me and the past is it's really good about driving growth within the business. And when I say we want to drive growth within the business, it's in all aspects of what we do. But in particular, where I want to spend a lot of our efforts in terms of growing share is first and foremost is in our commercial space business. Our non-semi business, the machining aspect of that that we've been chasing around for a while. On top of that, what I would add is all of our componentry. And then I also want to gain share in gas panel. So it's really across the board. And what I would say is, our customers really divvy out share based on platform. I want to get a little more balanced. In terms of what platforms we're on. So there's a little bit of work to do there as well. But I would say across the board, during a ramp cycle is really where, you know, share can be won and lost. And I believe we're preparing ourselves to win some share during this cycle.

Great. Thank you.

Our next question is from Christian Schwab with Craig Hallum.

Thanks for taking my question. Congrats. Most of them have already been asked. I just have one. The growth trajectory at WFE is expected to remain robust again in '27. Do you think that from a component standpoint that you can operate near previous targets, say, 18% to 20% gross margins? Or will it take a little bit more time to get there?

Yeah. I don't want to throw out a timeline for the 18% to 20% at this point. It's a little early to guide that. But what I would say is with the current trajectory of '27, I think we can get back to some historical levels in terms of revenue. And I would anticipate with the components kicking in and things of that sort that we should see significant earnings leverage as we move forward through 2027. Like I said, I don't want to at this point in time and this far away from the next year, guide what we think in terms of gross margins are gonna be at that point.

That's great. Thank you. No other questions.

Our next question is from Edward Yang with Oppenheimer and Company.

Hey, Phil, thanks for the time and congrats on the quarter. You mentioned commercial space as a growth opportunity. And could you just remind us what percentage of your business is that and how the margin might compare versus corporate?

Yeah. I wouldn't want to call it the margins because that gives a little too much away. So I won't comment on that, but it is accretive to our general margin profile. What I would say is that they're a sub 5% customer today. Our goal in the kind of medium term is to turn them into a 10% customer. Obviously, with what we're seeing in terms of the semi ramp, that's gonna raise the bar for that. So it's gonna be a little harder for the team to meet that, but that's still the goal. But that is our goal, and I would call them medium term in terms of what we want to do with that particular customer.

Okay. Great. And, given the growth outlook, you know, how are you thinking about CapEx, CapEx and 2025 as a percentage of revenue when absolute dollars was up year over year. Do you expect that to grow from these levels or moderate back to norms? And related to that, you have taken some restructuring actions significant restructuring actions, the last couple of quarters. Are we past any sort of additional accruals for restructuring at this point?

Hey, Ed. It's Greg. I'll take those. On the CapEx front, you know, we did about a little close to 4% this year or '25. So about $36 million. And a lot of that investment was in our new facility in Malaysia. Shifting to '26, we will be moderating it down and moving towards a more manageable rate of around 3% of revenue, but that requires, you know, more on the equipment to be deployed now to the facility in Malaysia. And then we're rebalancing some machining equipment within North America as we execute on that realignment of the North America machining facilities. And so it'll moderate down to about 3% in '26. And that'll give you an indication of what we think we should spend there. And then on the restructuring, yeah, we did take about $10 million in Q4. And that was still obviously a heavy lift for the full year. But the majority of that effort is now complete. We still expect to see some activities as we wind down these facilities that we're realigning in the US, but it won't be at the magnitude that we saw in the full year nor in Q4.

Thank you. There are no further questions at this time. I'd like to hand the call back over to Phil Barros for any closing comments.

Yes. Thank you, operator, and thank you, everyone, for joining our call today. In closing, I wish to convey our confidence in the new Ichor Holdings, Ltd. and our expectations to deliver strong earnings leverage through this cycle. I look forward to our next update at our Q1 call in May. In the meantime, please reach out to Claire to arrange any follow-up meetings that you may have. With that, I conclude today's call.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.