ICHR Q3 2026 earnings call transcript, November 2, 2026

Good day, ladies and gentlemen, and welcome to ICHR's third quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session, and instructions will be given at that time. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Claire McAuliffe. ICHR Adams, Investor Relations for ICHR. Please go ahead. Thank you, operator. Good afternoon, and thank you for joining today's third 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 to a number of risks. 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 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 Swite, 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 Q3 earnings call. We are pleased to report another quarter of strong growth and expanding profitability. The strategic priorities we laid out a year ago continue to translate into results. Third quarter revenue of $329 million grew 12% sequentially and increased 37% compared to the same period last year. Year to date, Q3 revenue volumes represent a nearly 50% increase from our Q4 revenue trough, which is an unprecedented demand ramp across just three quarters. Gross margin of 16% exceeded the high end of expectations and increased 190 basis points compared to Q2, driving significant upside to earnings. Customer demand remains robust and our visibility extends well. With every segment of the semiconductor market ramping in unison, the pain points within the tightly constrained supply environment have clearly risen to the surface. Some of these constraints are impacting high end edge in depth position applications. These advanced applications require highly precise gas delivery and highly precise gas delivery also represents ICHR's primary product offering. For example, high aspect ratio dielectric edge systems shipping in the U.S. in the U.S. in the U.S. in the gate all-around architectures and the most advanced DRAM fads today call for pressure-based mass flow controllers in their delivery systems. And the majority of ICHR's products support exactly these types of high-end applications. Which means that ICHR's product mix is heavily weighted to one of the industry's most pressing bottlenecks. Let me spend a moment talking about how we adjusted shipments in Q3 in response to these continued constraints affecting gas delivery. Essentially

ICHR's product mix is heavily weighted to the U.S. in the U.S. in the U.S. in the U.S. specifically we focused on increasing gross profit dollars and generating significant earnings leverage in the face of revenue limitations. We expanded the reach of our component business into other areas of the systems we support. We secured new component wins during Q3 across six new tool platforms which reside entirely outside of the gas panel. These wins broaden our opportunities for revenue growth and diversification as these programs ramp. While components carry lower ASPs than complete systems, they deliver a stronger earnings contribution per dollar of revenue. We are seeing this benefit in our results and the pace of our earnings growth. We are also addressing supply risks directly with our product strategy by prioritizing the components that are most constrained, namely valves, fittings, substrates, and soon, flow control. We are working closely with our customers and suppliers to keep pace with demand. During this unprecedented ramp, we are executing ahead of plan on all the initiatives aimed at increasing our gross profit and earnings generation. There's no question that a demand ramp of this magnitude will continue to expose pain points in the supply chain. As an industry, we've worked through these challenges before, and we will again. What you can count on from my core is that we will continue to deliver strong execution on all of our key profit drivers within our control. By delivering 16% gross margin in Q3,

and we will continue to deliver strong execution on all of our key products. In Q3, we are effectively one quarter ahead of plan. Our incremental gross margin in Q3 was 33%, well above our ongoing expectations of 25 to 30%, as we increase the proprietary content in the gas systems we build for our customers. Our strategy to broaden component deliveries outside the gas box in Q3 also gave us an additional gross margin tailwind of favorable product mix. Therefore, as you evaluate ICHR's results in Q3, we in Q3. I encourage you to look at gross profit generation, which was $3 million above the midpoint of guidance. This was much more meaningful to our earnings than $1 million of gas panel revenue. Our guidance for fourth quarter indicates continued sequential growth in revenues, gross margin, and earnings per share. With our current visibility, we expect full year 2026 revenue growth of roughly 30%. The supply chain constraints that are affecting the high-end segments of... the etch and deposition are fully incorporated in our expected second half growth of 24% at the midpoint, compared to at least 25% growth above the first half as we forecasted one quarter ago. Importantly, we have increased net income by 100% sequentially every quarter this year. In Q4, we expect to deliver earnings growth outpacing revenue growth once again. This type of earnings leverage and operating model improvement is exactly what our strategic initiatives set forth a year ago are intended to deliver.

Turning to our key strategies to scale ICHR's capacity for the growth ahead. Last quarter, we discussed our plans to scale ICHR's capacity to $3 billion of revenue within our existing manufacturing footprint. As we expand operations to this level, we are focused on three priorities, completing the alignment of our volume manufacturing footprint, increasing proprietary content, making strategic investments in machining capacity, and adding headcount required to support next year's demand. I am pleased to report strong progress achieved in each of the three priorities during Q3. First, our manufacturing footprint. Our high-volume manufacturing sites in Malaysia and Mexico continue to ramp. Both machining and welding in Malaysia are qualified by both of our largest customers. All planned moves to Mexico are now complete. We are already seeing the benefits of this in our product margins. Malaysia will continue to ramp through the fourth quarter of 2026 with additional capacity. to come online in 2027. Next, increasing proprietary content. We exited the third quarter ahead of plan of over 30% proprietary content within the gas systems we sell compared to 25% in Q2. We remain on track for about 35% proprietary content exiting the fourth quarter. Every point of in-house content improves our margins and reduces our reliance on outside suppliers. We are seeing the third quarter here in a few years. We have a lower program at the end of the beginning. We have to continue to support the providers. We have to continue to support the providers. We have to continue to support our customers and our customers. This is a pre-organized program. The first is a pre-organized program of the current service. For the last. The next, the first is a pre-organized program. We are also considered a pre-organized program. We have to continue to

strong growth in sales or proprietary content outside gas delivery systems. This will continue to be a focus for design wins as we continue to execute our strategy. Now turning to our plans to transition existing brick and mortar into finished manufacturing capacity. This will happen in three phases. Phase one is converting the shelves into clean room space. During the third quarter, we finished building out our planned clean room capacity that supports 2027 demand as described in August. Converting additional camelsа. With the upcoming footprint and clean room capacity to support demand in 2028 and beyond requires about three to four months of lead time. Phase two is completing equipment orders and installation. For gas system integration, with clean rooms now in place, the largest remaining item is to install test fixtures, which are relatively low in capital cost and shorten lead time. And we can place these additional orders here as needed. We have expanded our welding capacity by nearly 2x ahead of the coming ramp. With our current visibility, So we could type on that as needed for example. So we can site for the third quarter, and we could place thisо. We could have a better opportunity. And if the third quarter is required, the third quarter is enough. Where do you have the second quarter? At least two are around. At least three' o'clock if we could do and leave the opportunity. We could do so with that. At least two But then I don't know what it's gonna be done. But then I will keep it up. At least three' o'clock. We can even see the next quarter. If the third quarter is going to be a bit better, right? We can do.

This expanded capacity of weldments will support both our internal and external needs through 2027. We expect our capital spending in 2027 to chiefly support our proprietary products and machining capacity. These include flow control, valves, fittings, and substrates. We received our first wave of new machining tools for Malaysia during the third quarter. They are now being installed and will ramp through the fourth quarter. All the equipment we need to support 2027 is now on order and is on track for installation. within the next six months. We have also partnered with qualified third parties to help us ramp our proprietary products faster with less capital. We have been qualifying these partners throughout the year. This additional capacity keeps us agile while meeting our margin targets for these products. Phase three is manufacturing headcount. We are hiring and training ahead of demand. This year we have expanded manufacturing headcount by 40% through Q3. Now listen to your neue with 320 hires in Q3 alone to support the production rate. We expect to execute on continued aggressive hiring plans for the next few quarters. To summarize, we are executing on a steep revenue ramp. At the same time, we are expanding gross margins every quarter and achieve 16% gross margin a full quarter earlier than expected. The operating model improvements we planned a year ago are delivering significant earnings leverage with greater than 100%

So, let's take a look at it.

We expect the structural improvements in our operating model to drive continued strong earnings leverage as revenues grow. As we look ahead to 2027, all evidence available today indicates that it will be a strong revenue growth year for all OEMs and subsystem suppliers within the WFE. While pain points are increasing, it will be a strong revenue growth year for all OEMs and subsystem suppliers within the WFE. While pain points are increasing, it will be a strong revenue growth year for all OEMs and subsystem suppliers within WFE. Investments in the supply chain are going to continue to emerge from time to time. We expect every quarter in 2027 will be a growth quarter for ICHR. We expect to deliver continued gross margin expansion as we move through the year, and we expect ICHR's earnings growth in 2027 will outpace revenue growth by over 2x. To sum up, within a WFE environment that supports solid revenue trajectory for all suppliers, it is ICHR's earnings growth story that truly sets us apart. And we look forward to continuing to deliver strong earnings growth. And with that, I will turn the call over to Greg to discuss our financials in greater detail. 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. Third quarter revenues of $328.7 million increased 12% sequentially and were up 37% year-over-year. Revenues came in within zero. 0.4% of the midpoint of our guidance. With Q3 product mix shifting more toward high margin component sales, gross margin exceeded the high end of our guidance at 16%, up 190 basis points sequentially. Gross margin flow through exceeded 30%, reflecting strong execution and increasing proprietary content in addition to the more favorable mix profile. Stronger gross margin drove the majority of upside in operating income. Q3 operating expenses came in below forecast at $24.4 million with a portion of expected spending increases now expected in Q4. Operating margin improved to 8.6% up from 5.5% in Q2. EPS was 63 cents, well above the high end of our guidance. Based on 38.2 million diluted shares outstanding. Both interest expense and tax expense were favorable to our earnings forecast. Turning to cash flow. Adjusted EBITDA in Q3 was $33.9 million. And after interest and taxes, cash generation from the P&L was roughly $30 million, a new four-year quarterly record. In the current steep ramp of the- demand, we are quickly generating significant earnings leverage and cash flow from the P&L. At the same time, we must continue to invest in working capital to support the continued growth ahead. Total use of cash from operations was $29 million, reflecting $75 million of increase in inventory and receivables. These increases closely aligned to the revenue ramp with both inventory

terms. and DSO similar to Q2 at 3.6 turns and 39 days, respectively. Capital expenditures were $10.7 million, supporting the expansion of cleanroom space and our next wave of new machining equipment. We ended the quarter with cash-in equivalents of $213.5 million. Total debt at quarter end was $119 million, and our net debt coverage ratio was $0.8 million. Turning to fourth quarter guidance, we currently anticipate Q4 revenues in the range of $345 to $365 million. At the midpoint, this represents sequential quarterly growth of 8% and full year 2026 revenue growth of 30%. We expect Q4 gross margin will increase sequentially. to 16.5%, plus or minus 0.5%. Our operating expense forecast for Q4 is $26 million, plus or minus $500,000. Our EPS guidance of $0.65 to $0.75 assumes total interest and other expenses of $1 million, an estimated effective tax rate of approximately 15%, and $38.5 million. diluted shares outstanding. As we look to 2027, I will share a few parameters to give an early indication of how we are framing the shape of the year. We expect our revenue growth in 2027 to be aligned with our customers' growth in systems. Based on current visibility, those plans support sequential revenue growth every quarter. Given our expectation for another year of strong revenue growth,

ahead, we expect to deliver on continued gross margin expansion aligned with our new higher incremental gross margin model of at least 25%. We currently expect operating expenses to increase around 15% for the full year 2027 as we invest in R&D and in the people required to support our growth. Current expectations are to manage OPEX growth to about one-half the rate of revenue growth growth. as volumes increase and we'll continue to update you on spending plans. We expect the most significant step up in OPEX will be in Q1, reflecting hiring increases, annual adjustments for payroll taxes and benefits, and other seasonal increases. For modeling purposes, we currently estimate total interest and other expenses of about $1 million per quarter as we move through 2027. Based on the... ...expected geographic distribution of profits next year, we are currently forecasting a slightly lower tax rate than the previous 20% to 25% rate. For now, we are estimating an effective tax rate of approximately 15% in Q4 and a range of 15% to 20% for fiscal 2027. Our acceleration of CapEx in 2026 currently estimated at approximately 4% of revenues. will continue into 2027. We expect significant investments over the first half of 2027 given expected equipment deliveries. We will continue to add additional machining capacity in Malaysia and Mexico, as well as complete the final build out of clean room space in our Singapore facility.

While the investment may be skewed to the first half of 2027, we still expect the overall spending. to be within our target of 3-4% of revenue for fiscal 2027. Our capital position remains strong with significant borrowing capacity and a current net debt coverage ratio below 1. With adjusted EBITDA generation in 2026 estimated to exceed $100 million, roughly five times last year's level, we have significant financing flexibility available in order to support the costs have more- Indies. working capital and capex investments necessary to execute on the strong growth ahead. In summary, our third quarter results demonstrate the earnings leverage of our operating models. Revenue is growing with our customer system shipments, gross margin is expanding faster than we planned, and our incremental margins are structurally higher. We believe this positions ICHR to convert revenue growth into strong- earnings growth through 2027. Finally, a reminder that periodically we must adjust our fiscal year end to align with the calendar end, and consistent with our prior practice, this adjustment will occur in fiscal 2027, which will have 53 weeks, compared with 52 weeks in the current fiscal year. Operator, we are now ready for questions.

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that analysts limit themselves to one question and a follow-up so that others may have an opportunity to do it.

We do so as well. One moment, please, while we pull for questions. Our first question comes from Brian Chin with Stiefel. Please proceed with your question.

are constrained. They're going to be constrained. We're an innovative industry. I believe that we will solve this. We've solved it before in the past. We'll solve it again. So I feel very good that at this point in time in November 2nd that we will definitely hit that midpoint based on today's visibility. Got it. In terms of maybe, is it too early at the time stamp? Maybe when you could see maybe some decent progress made against some of those? Yeah, I would say a couple things. In terms of our revenue linearity this quarter versus last quarter, first and foremost, our revenue linearity this quarter is significantly higher than it was last quarter. So I do feel the constraints are starting to loosen. With that said, as we've talked about before in the past, Brian, we figure we're going to be part of the solution long term. So I think the more and more of our I-Corps Binder products that we can bring online, the more and more we can relieve the constraints in the supply chain. Thanks. And then maybe for the real follow-up here, from a gross margin standpoint, obviously better in the quarter than the top end of the guide. Can you help to quantify how much of that was the benefit from shifting gears and shipping more components to non-gas panel applications? And do you expect that to be an expanding tailwind into Q4 and is also lithography, also a tailwind in terms of mix as well? Yeah, I would say a couple things there. Obviously, the more, and you and I have talked about this in the past as well, the more we sell on components, the higher our ceiling is for gross margin. So clearly one of our focus areas, and I think I introduced this back in January, one of our focus areas is clearly to sell components outside of our core gas delivery systems, so at a broader range. So I would say in general that is a path forward, and we're pushing that. That's a major focus for us from a designer.

And I would say a lot of that's converting into real revenue at this point. So I feel good about that. In terms of litho, I think I may have discussed this in the past, but I see a small step up in Q4, a large step up in Q1. And as we talked about in the past, obviously our litho customer is a good tailwind from a gross margin perspective. Great. Thanks. Thanks a lot, Phil.

Our next question comes from Craig Ellis with B Reilly Securities. Please proceed with your question.

And if their demand turned up, I call it. 10 to 15 percentage points in the year, do you have the flexibility with your supply chain to meet that? Yeah, that's a great question. So clearly the first thing we need to manage is the supply chain. So we're managing that, you know, kind of hand in hand and hand in glove with our customers. I would say that in general, like I said to Brian's question, I feel like we're an innovative group of people in this industry and we'll figure it out. Well, we always have, we always will. And I feel good about that loosening up over time. So with that said, I would say in order to flex, you know, kind of maybe a 10 to 15%, it's really going to be people. And then on top of that, it's going to be supply chain. So I would say it's those two levers. I feel really good about the capacity we're putting in place in terms of both for internal content as well as our external content from a component standpoint and as well as our system business. We have built out the clean rooms and I would in some groups of people. I would say the ability to flex within our Malaysia factory within this timeframe is really giving us an opportunity to grow rather quickly and have some flexibility with our customers as we go forward. Got it. Thanks guys.

Our next question comes from Krish Sankar with T.D. Cohen. Please proceed with your question.

Got it. Thank you. And regarding components, do you mean like increasing in sourcing of mass flow controllers specifically? Yeah, so I think of that in multiple ways. That's all of our proprietary content and kind of what I wanted to introduce on this call, and maybe I haven't talked about it a lot, but we're seeing really good traction with it is selling those same components to other areas outside of the gas delivery system. That's actually offering a new platform for us to sell those components, and the more and more of those components we sell, the higher and higher that ceiling is for gross margin. Got it. And just to follow up on timing, when should we expect that to show up in revenues and margins? Yeah, so we're already seeing that today, and actually if you saw that, that's actually what helped us in Q3. So that's an ongoing progress that we're going through. You asked about flow control in particular. I'm going to address that as well. What I would say is that what I've always said, which is it's a 2027 revenue event. I would say I've been in this industry and doing gas delivery for 25 years, and the appetite for change and the appetite for a new entrant like ICHR in flow control is higher than I've ever seen. So I would say that there's a lot of appetite for us to get that across the finish line, and I still believe that's a 2027 revenue event. Got it. Thank you.

Our next question comes from Charles Shi with Needham & Co. Please proceed with your question.

Okay, so let's say the customer authorize the shipment, then you are able to recognize the authorize the shipment, you are able to recognize the revenue without. Yes. Okay, but with some discount, I would assume, or no. Sorry? Like, like it, like a you know, Rick, you can recognize the full amount or no? Yes. For most part, we are recognizing full revenue. It's based on the arrangement with the customer on their authorization, the short ship, whether they're paying for the full value or we're holding back a portion of it. But for the most part, it is at full value. Got it. Got it. I know we're, we're allowed one question while I follow up. Okay. May I ask another question? Absolutely. Yes. Okay. Great. Thanks. So the internal component, I mean, maybe let me not call it the internal content yet. The components, I think there are two different ways for you to monetize, right? Either it goes into the gas panel, doesn't help with the revenue, but it helps with your profits, or it goes out of the gas box. That's a contribution to both the revenue and the profits. So, um, can you kind of quantify that for us, that what happened in Q3, and maybe what you expect to happen in Q4, how much of that component upside really is about going into gas box versus outside of the gas box? Q3 and Q4, please. Thanks. Okay, let me try to answer that clearly. But if I don't, please, please feel free to follow up again.

But what I would say is we talked about our internal content. So the internal content went from, you know, call it 25% to 30% last quarter. We'll exit Q4 at around 35%. When you look at our external sale components, that is an area that's growing rapidly. Just to put a quantification behind it, if you will, or quantity around it, think of it as from Q1 to Q4, it's grown by 250%. So we've grown that business by 250%, now off of a small base, but quite a bit. And I expect that to continue to grow between Q3 and Q4 and Q4 and Q1. And that's been a revenue driver for us through this year. Thank you. Thanks. Our next question comes from Edward Yang with Oppenheimer. Please proceed with your question.

is much wider and much broader than they have in the past. With that said, I would say that in general, what they're doing is making sure that when we buy inventory and we place POs, that we're not overextending ourselves. They want to make sure that inventory is going to move for sure. Basically, the agreements we have with our customers, if it doesn't move for a period of time, then they own that inventory. Thank you.

Our next question comes from Ben Taxell with Craig Hellum Capital Group. Please proceed with your question.

Hey, Ben. I don't think we've positioned yet that we have a 25% gross margin target. It's a 20% gross margin target with that 25% to 30% incremental flow through, right? So our target at 2 billion to 3 billion is still 20%. We may revisit that, but it's still 20%. Perfect. Thanks for the clarity there. I must have missed that. That's all I got. Thanks, guys. Thank you. Our next question comes from Mazurk Damuken.

Yeah, and a follow-up question would be, as you expand internal manufacturing of valves, fittings, substrates, and eventually flow control components, could these investments help unlock additional revenue opportunities, or are they primarily aimed at reducing supply chain risks and protecting existing shipments? Yeah, I think the short answer to that is yes. What I would say is our initial thought of the strategy or take on the strategy was really to increase our internal margins and our gross margins and our, you know, by becoming vertical in the systems that we make. As we matured this process and we've gotten through kind of to where we're at today, we see a significant opportunity for us to sell these same components outside of the gas delivery systems that we build. So we see a lot of opportunities to grow revenue, not just gross margin and not just vertical content. by going directly after these components in different areas of the tool. And actually that's exactly what happened in Q3. We saw some areas where we can win qualification positions and we did that. And those are the same proprietary components that we talked about that go into our gas systems and can also be used in other areas of the tool. Thank you. We have reached the end.

End of our question and answer session as there are no further questions at this time. I would now like to turn the floor back over to Phil Barros for closing comments. Thank you operator and thank you everyone for joining our call today. A year ago we laid out our plan to build a structurally stronger I-Corps. In Q3 we reached our fourth quarter gross margin target a full quarter ahead of schedule. I want to thank our employees for making that possible while taking on an exceptionally steep ramp. I have complete faith in this team and I'm proud of what we're accomplishing together.

We will keep executing on what's under our control, supporting our customers growth, expanding gross margin, and converting revenue growth into strong earnings leverage. We look forward to updating you in our Q4 call in February. In the meantime, please reach out to Clara to arrange any follow up meetings. Operator, you can conclude the call. This includes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.