ichr-10q_20190329.htm

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.

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 May 3, 2019, the registrant had 22,379,401 ordinary shares, $0.0001 par value per share, outstanding.

	March 29, 2019			December 28, 2018
Assets
Current assets:
Cash	$	31,611		$	43,834
Accounts receivable, net		53,897			40,287
Inventories, net		114,171			121,106
Prepaid expenses and other current assets		5,936			6,348
Total current assets		205,615			211,575
Property and equipment, net		43,945			41,740
Operating lease right-of-use assets		16,797			—
Other noncurrent assets		901			906
Deferred tax assets, net		1,363			1,363
Intangible assets, net		53,758			56,895
Goodwill		173,010			173,010
Total assets	$	495,389		$	485,489
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	64,691		$	64,300
Accrued liabilities		7,413			9,556
Other current liabilities		4,488			5,148
Current portion of long-term debt		8,750			8,750
Current portion of lease liabilities		5,148			—
Total current liabilities		90,490			87,754
Long-term debt, less current portion, net		184,954			192,117
Lease liabilities, less current portion		12,062			—
Deferred tax liabilities		3,969			3,966
Other non-current liabilities		2,234			3,326
Total liabilities		293,709			287,163
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; 22,370,129 and 22,234,508 shares outstanding, respectively; 26,807,568 and 26,574,037 shares issued, respectively)		2			2
Additional paid in capital		231,793			228,358
Treasury shares at cost (4,437,439 and 4,339,529 shares, respectively)		(91,578	)		(89,979	)
Retained earnings		61,463			59,945
Total shareholders’ equity		201,680			198,326
Total liabilities and shareholders’ equity	$	495,389		$	485,489

	Three Months Ended
	March 29, 2019			March 30, 2018
Net sales	$	137,831		$	258,029
Cost of sales		117,608			215,430
Gross profit		20,223			42,599
Operating expenses:
Research and development		2,391			2,452
Selling, general, and administrative		11,758			15,711
Amortization of intangible assets		3,137			3,879
Total operating expenses		17,286			22,042
Operating income		2,937			20,557
Interest expense		2,768			2,504
Other expense, net		24			241
Income before income taxes		145			17,812
Income tax expense (benefit)		(1,373	)		1,091
Net income	$	1,518		$	16,721
Net income per share:
Basic	$	0.07		$	0.64
Diluted	$	0.07		$	0.63
Shares used to compute net income per share:
Basic		22,269,827			26,030,298
Diluted		22,536,209			26,734,710


						Additional			Treasury							Total
For the three months ending March 29, 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		186,915			—		1,904			—		—			—		1,904
Ordinary shares issued from vesting of restricted share units		24,115			—		(111	)		—		—			—		(111	)
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		—			—		1,330			—		—			—		1,330
Net income		—			—		—			—		—			1,518		1,518
Balance at March 29, 2019		22,370,129		$	2	$	231,793			4,437,439	$	(91,578	)	$	61,463	$	201,680


						Additional		Treasury							Total
For the three months ending March 30, 2018	Ordinary Shares					Paid-In		Shares					Retained		Shareholders'
	Shares			Amount		Capital		Shares		Amount			Earnings		Equity
Balance at December 29, 2017		25,892,162			3		214,697		—		—			2,062		216,762
Ordinary shares issued from exercise of stock options		325,969			—		3,232		—		—			—		3,232
Ordinary shares issued from vesting of restricted share units		50,423			—		—		—		—			—		—
Ordinary shares issued from employee share purchase plan		10,781			—		177		—		—			—		177
Repurchase of ordinary shares		(195,750	)		—		—		195,750		(5,000	)		—		(5,000	)
Share-based compensation expense		—			—		3,791		—		—			—		3,791
Net income		—			—		—		—		—			16,721		16,721
Balance at March 30, 2018		26,083,585		$	3	$	221,897		195,750	$	(5,000	)	$	18,783	$	235,683

	Three Months Ended
	March 29, 2019			March 30, 2018
Cash flows from operating activities:
Net income	$	1,518		$	16,721
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		5,210			5,752
Share-based compensation		1,330			3,791
Deferred income taxes		3			(127	)
Amortization of debt issuance costs		212			333
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net		(13,610	)		(26,350	)
Inventories		6,935			(10,470	)
Prepaid expenses and other assets		1,357			370
Accounts payable		895			8,731
Accrued liabilities		(1,994	)		(974	)
Other liabilities		(2,279	)		1,439
Net cash used in operating activities		(423	)		(784	)
Cash flows from investing activities:
Capital expenditures		(4,782	)		(3,668	)
Net cash used in investing activities		(4,782	)		(3,668	)
Cash flows from financing activities:
Issuance of ordinary shares under share-based compensation plans		2,067			3,409
Employees' taxes paid upon vesting of restricted share units		(111	)		—
Repurchase of ordinary shares		(1,599	)		(5,000	)
Debt issuance and modification costs		—			(2,092	)
Borrowings on revolving credit facility		5,000			7,162
Repayments on revolving credit facility		(8,000	)		—
Repayments on term loan		(4,375	)		(4,535	)
Net cash used in financing activities		(7,018	)		(1,056	)
Net decrease in cash		(12,223	)		(5,508	)
Cash at beginning of year		43,834			69,304
Cash at end of quarter	$	31,611		$	63,796
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	3,255		$	1,297
Cash paid during the period for taxes	$	107		$	230
Supplemental disclosures of non-cash activities:
Capital expenditures included in accounts payable	$	958		$	834

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.

We use a 52 or 53 week fiscal year ending on the last Friday in December. The three months ended March 29, 2019 and March 30, 2018 were both 13 weeks. References to the first quarter of 2019 and 2018 relate to the three month periods then ended.

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.

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.

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 adverse effect on our financial position or results of operations.

In February 2016, the FASB issued ASU 2016‑02, Leases (Topic 842), which consists of a comprehensive lease accounting standard. Under the new standard, assets and liabilities arising from most leases will be recognized on the balance sheet. Leases will be classified as either operating or financing, and the lease classification will determine whether expense is recognized on a straight-line basis (operating leases) or based on an effective interest method (financing leases). The standard also contains expanded disclosure requirements regarding the amounts, timing, and uncertainties of cash flows related to leasing activities.

The new standard is effective for interim and annual periods beginning after December 15, 2018. In July 2018, the FASB issued ASU 2018‑11, Leases (Topic 842): Targeted Improvements, which provides an optional transition method allowing entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We adopted and applied the lease standard as of December 29, 2018, the first day of fiscal year 2019, using this optional transition method.

The new standard provides a number of practical expedients in transition. We elected the package of practical expedients, which permits us not to reassess our prior conclusions about lease identification, lease classification, and initial direct costs. We elected to not recognize short-term leases, those with an initial term of 12 months or less, on our consolidated balance sheets.

The new standard had material effects on our consolidated financial statements. The most significant effects relate to the recognition of right-of-use (“ROU”) assets and lease liabilities on our balance sheet for our facilities operating leases and the new disclosure requirements about our leasing activities. Upon adoption, we recorded operating lease liabilities of $18.1 million, with an offsetting increase to operating lease ROU assets of $17.7 million in exchange for the liabilities assumed. We did not recognize a cumulative-effect adjustment to the opening balance of retained earnings, as there was no adjustment to be made as a result of our adoption and application of the standard. The standard did not have a significant impact on our consolidated statements of income or cash flows.

In June 2018, the FASB issued ASU 2018‑07, Compensation-Stock Compensation (Topic 718): Improvements to Non-Employee Share-Based Payment Accounting. This standard is intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to nonemployees. ASU 2018‑07 expands the scope of ASC Topic 718, which currently only includes share-based payments issued to employees, to also include share-based payments issued to nonemployees for goods and services. We adopted ASU 2018‑07 on December 29, 2018, the first day of fiscal year 2019, which did not have a significant impact on our consolidated financial statements.

	March 29, 2019			December 28, 2018
Machinery	$	29,701		$	29,885
Leasehold improvements		16,816			15,333
Computer software, hardware, and equipment		5,195			4,884
Office furniture, fixtures and equipment		1,109			1,058
Vehicles		26			26
Construction-in-process		12,162			9,514
		65,009			60,700
Less accumulated depreciation		(21,064	)		(18,960	)
Total property and equipment, net	$	43,945		$	41,740

Depreciation expense was $2.1 million and $1.9 million for the first quarter of 2019 and 2018, respectively.

	March 29, 2019
	Gross value		Accumulated amortization			Accumulated impairment charges		Carrying amount		Weighted average useful life
Trademarks	$	9,690	$	(7,024	)	$	—	$	2,666	10.0 years
Customer relationships		82,986		(34,138	)		—		48,848	7.8 years
Developed technology		2,900		(656	)		—		2,244	10.0 years
Total intangible assets	$	95,576	$	(41,818	)	$	—	$	53,758

	December 28, 2018
	Gross value		Accumulated amortization			Accumulated impairment charges		Carrying amount		Weighted average useful life
Trademarks	$	9,690	$	(6,781	)	$	—	$	2,909	10.0 years
Customer relationships		82,986		(31,308	)		—		51,678	7.8 years
Developed technology		2,900		(592	)		—		2,308	10.0 years
Total intangible assets	$	95,576	$	(38,681	)	$	—	$	56,895

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. For purposes of calculating operating lease liabilities, we use the non-cancellable lease term, without consideration for renewal options. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

We lease facilities under various non-cancellable operating leases expiring through 2024. In addition to base rental payments, we are generally responsible for our proportionate share of operating expenses, including facility maintenance, insurance, and property taxes. As these amounts are variable, they are not included in lease liabilities. As of March 29, 2019, we had no operating leases that had not yet commenced.

Future minimum lease payments under non-cancelable leases as of March 29, 2019 are as follows:

Future minimum lease payments under non-cancelable leases as of December 28, 2018, as reported under previous guidance, are as follows:

Our effective tax rate for the first quarter of 2019 differs from the statutory rate due to taxes on foreign income that differ from the U.S. tax rate, the release of certain tax reserves related to statute of limitation expirations and settlements, and excess tax benefits from share-based compensation. Our effective tax rate for the first quarter of 2018 differs from the statutory rate due to taxes on foreign income that differ from the U.S. tax rate, accrued withholding taxes, and excess tax benefits from share-based compensation.

The ending balance for the unrecognized tax benefits for uncertain tax positions was approximately $1.8 million at March 29, 2019. The related interest and penalties were $zero and $0.4 million, respectively. The uncertain tax positions that are reasonably possible to decrease in the next twelve months are insignificant.

We sponsor a 401(k) plan available to employees of our U.S.‑based subsidiaries. Participants may make salary deferral contributions not to exceed 50% of a participant’s annual compensation or the maximum amount otherwise allowed by law. Eligible employees receive a discretionary matching contribution equal to 50% of a participant’s deferral, up to an annual maximum of 4% of a participant’s annual compensation. Matching contributions were $0.4 million and $0.5 million for the first quarter of 2019 and 2018, respectively.

	March 29, 2019			December 28, 2018
Term loan	$	166,250		$	170,625
Revolving credit facility		31,162			34,162
Total principal amount of long-term debt		197,412			204,787
Less unamortized debt issuance costs		(3,708	)		(3,920	)
Total long-term debt, net		193,704			200,867
Less current portion		(8,750	)		(8,750	)
Total long-term debt, less current portion, net	$	184,954		$	192,117

On February 15, 2018, we amended and restated our credit agreement, which replaced our existing credit facilities with a $175.0 million term loan and a $125.0 million revolving credit facility. The amendment reduced our borrowing rate, depending on our leverage ratio, and extended the maturity date. We incurred debt issuance costs of $2.1 million in connection with the amendment. The amendment did not meet the definition of an extinguishment and was accounted for as a debt modification.

Interest is charged at either the Base Rate or the Eurodollar rate (as such terms are defined in the credit agreement) at our option, plus an applicable margin. The Base Rate is equal to the higher of i) the Prime Rate, ii) the Federal Funds Rate plus 0.5%, or iii) the Eurodollar Rate plus 1.00%. The Eurodollar rate is equal to LIBOR. The applicable margin on Base Rate and Eurodollar Rate loans is 0.75‑1.50% and 1.75‑2.50% per annum, respectively, depending on our leverage ratio. We are also charged a commitment fee of 0.20%-0.35% on the unused portion of our revolving credit facility. Base Rate interest payments and commitment fees are due quarterly. Eurodollar interest payments are due on the last day of the applicable interest period. At March 29, 2019, the term loan and revolving credit facility bore interest at the Eurodollar rate option of 4.80% and 4.66%, respectively.

Term loan principal payments of $2.2 million are due on a quarterly basis. The term loan and revolving credit facility mature on February 15, 2023.

In February 2018, our board of directors authorized a share repurchase program up to $50.0 million under which we may repurchase our ordinary shares in the open market or through privately negotiated transactions, depending on market conditions and other factors. Ordinary shares repurchased are recorded as treasury shares using the cost method on a first-in, first-out basis. In August 2018, our board of directors authorized a $50.0 million increase to the share repurchase program.

During the first quarter of 2019, we repurchased 97,910 ordinary shares for a total cost of $1.6 million at an average price of $16.34 per share. At March 29, 2019, $8.4 million remained available to repurchase ordinary shares under the repurchase program.

The 2016 Omnibus Incentive Plan (the “2016 Plan”) provides for grants of share‑based awards to employees, directors, and consultants. Awards may be in the form of options, tandem and non‑tandem stock appreciation rights, restricted share awards or restricted share units (“restricted shares”), performance awards, and other share‑based awards. Awards generally vest over four years, 25% on the first anniversary and quarterly thereafter. Upon vesting of restricted shares, employees may elect to have shares withheld to cover statutory minimum withholding taxes. Shares withheld are not reflected as an issuance of ordinary shares within our consolidated statements of shareholders’ equity, as the shares were never issued, and the associated tax payments are reflected as financing activities within our consolidated statements of cash flows.

Share‑based compensation expense across all plans for stock options, restricted shares, and employee share purchase rights was $1.3 million and $3.8 million for the first quarter of 2019 and 2018, respectively.

	Number of Stock Options
	Time vesting			Performance vesting		Weighted average exercise price per share		Weighted average remaining contractual term	Aggregate intrinsic value (in thousands)
Outstanding, December 28, 2018		1,706,441			65,908	$	18.57
Granted		—			—	$	—
Exercised		(186,915	)		—	$	10.19
Forfeited		(56,875	)		—	$	23.78
Expired		(7,000	)		—	$	25.41
Outstanding, March 29, 2019		1,455,651			65,908	$	19.38	4.9 years	$	6,562
Exercisable, March 29, 2019		610,225			65,908	$	15.90	3.9 years	$	4,949

The 2017 Employee Stock Purchase Plan (the “2017 ESPP”) grants employees the ability to designate a portion of their base-pay to purchase ordinary shares at a price equal to 85% of the fair market value of our ordinary shares on the first or last day of each 6 month purchase period. Purchase periods begin on January 1 or July 1 and end on June 30 or December 31, or the next business day if such date is not a business day. Shares are purchased on the last day of the purchase period.

During the first quarter of 2019, 22,501 ordinary shares were purchased by eligible employees under the 2017 ESPP. As of March 29, 2019, 2.4 million ordinary shares remain available for purchase under the 2017 ESPP.

Our Chief Operating Decision Maker, the Chief Executive Officer, reviews our results of operations on a consolidated level and executive staff is structured by function rather than by product category. Therefore, we operate in one operating segment. Key resources, decisions, and assessment of performance are also analyzed on a company‑wide level.

Foreign operations are conducted primarily through our wholly owned subsidiaries in Singapore and Malaysia. Our principal markets include North America, Asia and, to a lesser degree, Europe. Sales by geographic area represent sales to unaffiliated customers.

All information on sales by geographic area is based upon the location to which the products were shipped. The following table sets forth sales by geographic area:

The following table sets forth the computation of basic and diluted earnings per share and a reconciliation of the numerator and denominator used in the calculation:

	Three Months Ended
	March 29, 2019		March 30, 2018
Numerator:
Net income	$	1,518	$	16,721
Denominator:
Basic weighted average ordinary shares outstanding		22,269,827		26,030,298
Dilutive effect of stock options		243,136		658,223
Dilutive effect of restricted shares		19,046		45,271
Dilutive effect of employee share purchase plan		4,200		918
Diluted weighted average ordinary shares outstanding		22,536,209		26,734,710
Earnings per share:
Net income:
Basic	$	0.07	$	0.64
Diluted	$	0.07	$	0.63

An aggregated total of 587,853 and 346,622, potential ordinary shares have been excluded from the computation of diluted net income per share for the first quarter of 2019 and 2018, respectively, because including them would have been antidilutive.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included elsewhere in this report. The following discussion contains forward‑looking statements based upon our current plans, expectations, and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward‑looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in “Risk Factors.”

We are a leader in the design, engineering and manufacturing of critical fluid delivery subsystems for semiconductor capital equipment. Our primary offerings include gas and chemical delivery subsystems, collectively known as fluid delivery subsystems, which are key elements of the process tools used in the manufacturing of semiconductor devices. Our gas delivery subsystems deliver, monitor and control precise quantities of the specialized gases used in semiconductor manufacturing processes such as etch and deposition. Our chemical delivery subsystems precisely blend and dispense the reactive liquid chemistries used in semiconductor manufacturing processes such as electroplating and cleaning. We also manufacture certain components such as weldments and precision machined components for use in fluid delivery systems for direct sales to our customers. This vertically integrated portion of our business is primarily focused on metal and plastic parts that are used in gas and chemical systems, respectively.

Fluid delivery subsystems ensure accurate measurement and uniform delivery of specialty gases and chemicals at critical steps in the semiconductor manufacturing process. Any malfunction or material degradation in fluid delivery reduces yields and increases the likelihood of manufacturing defects in these processes. Historically, semiconductor OEMs internally designed and manufactured the fluid delivery subsystems used in their process tools. Currently, most OEMs outsource the design, engineering, and manufacturing of their gas delivery subsystems to a few specialized suppliers, including us. Additionally, many OEMs are also increasingly outsourcing the design, engineering, and manufacturing of their chemical delivery subsystems due to the increased fluid expertise required to manufacture these subsystems. Outsourcing these subsystems has allowed OEMs to leverage the suppliers’ highly specialized engineering, design, and production skills while focusing their internal resources on their own value-added processes. We believe that this outsourcing trend has enabled OEMs to reduce their fixed costs and development time, as well as provided significant growth opportunities for specialized subsystems suppliers like us.

We have a global footprint with production facilities in Malaysia, Singapore, Korea, California, Florida, Minnesota, Oregon, and Texas. In the first quarter of 2019 and 2018, our two largest customers by revenue were Lam Research and Applied Materials.

	Three Months Ended
	March 29, 2019			March 30, 2018
	(dollars in thousands)
Net sales	$	137,831		$	258,029
Gross profit	$	20,223		$	42,599
Gross margin		14.7	%		16.5	%
Operating expenses	$	17,286		$	22,042
Operating income	$	2,937		$	20,557
Net income, GAAP	$	1,518		$	16,721
Adjusted net income, non-GAAP	$	5,551		$	27,450

The following table sets forth our unaudited results of operations for the periods presented. The period‑to‑period comparison of results is not necessarily indicative of results for future periods.

	Three Months Ended
	March 29, 2019			March 30, 2018
	(in thousands)
Consolidated Statements of Operations Data:
Net sales	$	137,831		$	258,029
Cost of sales		117,608			215,430
Gross profit		20,223			42,599
Operating expenses:
Research and development		2,391			2,452
Selling, general, and administrative		11,758			15,711
Amortization of intangible assets		3,137			3,879
Total operating expenses		17,286			22,042
Operating income		2,937			20,557
Interest expense		2,768			2,504
Other expense, net		24			241
Income before income taxes		145			17,812
Income tax expense (benefit)		(1,373	)		1,091
Net income		1,518			16,721

The following table sets forth our unaudited results of operations as a percentage of our total sales for the periods presented.

	Three Months Ended
	March 29, 2019			March 30, 2018

Consolidated Statements of Operations Data:
Net sales		100.0			100.0
Cost of sales		85.3			83.5
Gross profit		14.7			16.5
Operating expenses:
Research and development		1.7			1.0
Selling, general, and administrative		8.5			6.1
Amortization of intangible assets		2.3			1.5
Total operating expenses		12.5			8.5
Operating income		2.1			8.0
Interest expense		2.0			1.0
Other expense, net		0.0			0.1
Income before income taxes		0.1			6.9
Income tax expense (benefit)		(1.0	)		0.4
Net income		1.1			6.5

The decrease in net sales from the first quarter of 2018 to the first quarter of 2019 was primarily due to reduced demand from our customers as a result of a cyclical downturn in the global wafer fabrication equipment market. On a geographic basis, sales in the U.S. decreased by $85.6 million to $76.6 million in the first quarter of 2019 and foreign sales decreased by $34.6 million to $61.2 million.

	Three Months Ended						Change
	March 29, 2019			March 30, 2018			Amount			%
	(dollars in thousands)
Cost of sales	$	117,608		$	215,430		$	(97,822	)		-45.4	%
Gross profit	$	20,223		$	42,599		$	(22,376	)		-52.5	%
Gross margin		14.7	%		16.5	%				- 180 bps

The decrease in cost of sales and gross profit from the first quarter of 2018 to the first quarter of 2019 was primarily due to decreased sales volume.

The 180 basis point decrease in our gross margin during the first quarter of 2019 compared to the first quarter of 2018 was primarily due to customer and product mix as well as lower factory utilization.

Research and development expenses were flat from the first quarter of 2018 to the first quarter of 2019.

The decrease in selling, general, and administrative expense from the first quarter of 2018 to the first quarter of 2019 was primarily due to a reduction in executive transition costs of $3.6 million from the retirement of our former CFO in the first quarter of 2018; reduced employee related expenses of $0.6 million resulting from headcount reductions during fiscal 2018 and the first quarter of 2019, and reduced legal expenses; offset in part by increased expenses of $0.7 million from the one-time release of a tax indemnification asset recorded in connection with our acquisition of Cal‑Weld.

The decrease in amortization expense from the first quarter of 2018 to the first quarter of 2019 was due to certain intangible assets being fully amortized as of the end of the fourth quarter of 2018.

The increase in interest expense from the first quarter of 2018 to the first quarter of 2019 was primarily due to an increase in our weighted average interest rate and the average amount borrowed. Our weighted average interest rate was 4.77% in the first quarter of 2019 compared to 4.16% in the first quarter of 2018.

The change in other expense (income), net for the first quarter of 2018 was primarily due to exchange rate fluctuations on transactions denominated in the local currencies of our foreign operations, principally the Singapore Dollar, Malaysian Ringgit, and British Pound.

The decrease in income tax expense from the first quarter of 2018 to the first quarter of 2019 was primarily due to discrete tax benefits recognized in the first quarter of 2019 relating to the release of certain tax reserves related to statute of limitation expirations and settlements.

Management uses non-GAAP adjusted net income to evaluate our operating and financial results. We believe the presentation of non-GAAP results is useful to investors for analyzing business trends and comparing performance to prior periods, along with enhancing investors’ ability to view our results from management’s perspective. Non-GAAP adjusted net income is defined as: net income excluding (1) amortization of intangible assets, share-based compensation expense, non-recurring expenses including adjustments to the cost of sales, and the tax adjustments related to those non-GAAP adjustments; and (2) non-recurring discrete tax items including tax impacts from releasing a valuation allowance related to foreign tax credits to the extent they are present in gross profit, operating income, and net income. Non-GAAP adjusted diluted EPS is defined as non-GAAP adjusted net income divided by weighted average diluted ordinary shares outstanding during the period.

The following table presents our unaudited non‑GAAP adjusted net income and a reconciliation from net income, the most comparable GAAP measure, for the periods indicated:

	Three Months Ended
	March 29, 2019			March 30, 2018
	(dollars in thousands, except per share amounts)
Non-GAAP Data:
Net income	$	1,518		$	16,721
Non-GAAP adjustments:
Amortization of intangible assets		3,137			3,879
Share-based compensation		1,330			3,791
Other non-recurring expense, net (1)		1,351			1,439
Tax adjustments related to non-GAAP adjustments		(1,785	)		(2,904	)
Fair value adjustment to inventory from acquisitions (2)		—			4,524
Non-GAAP adjusted net income	$	5,551		$	27,450
Non-GAAP adjusted diluted EPS	$	0.25		$	1.03
Shares used to compute diluted EPS		22,536,209			26,734,710

Included in this amount for the first quarter of 2018 are (i) separation benefits for our former CFO that became effective in January 2018 and (ii) acquisition-related expenses.

Non-GAAP adjusted net income has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for net income or any of our other operating results reported under GAAP. Other companies may calculate adjusted net income differently or may use other measures to evaluate their performance, both of which could reduce the usefulness of our adjusted net income as a tool for comparison.

Because of these limitations, you should consider non-GAAP adjusted net income alongside other financial performance measures, including net income and other financial results presented in accordance with GAAP. In addition, in evaluating non-GAAP adjusted net income, you should be aware that in the future we will incur expenses such as those that are the subject of adjustments in deriving adjusted net income and you should not infer from our presentation of adjusted net income that our future results will not be affected by these expenses or any unusual or non-recurring items.

We ended the first quarter of 2019 with cash of $31.6 million. Our principal uses of liquidity are to fund our working capital needs, purchase new capital equipment, and our share repurchase program. The net decrease of $12.2 million from December 28, 2018 was primarily due to net payments on long-term debt of $7.4 million, capital expenditures of $4.8 million, share repurchases of $1.6 million, and cash used in operations of $0.4 million, partially offset by net proceeds from the issuance of ordinary shares under our share-based compensation plans of $2.0 million.

We believe that our cash, the amounts available under our revolving credit facility, and our cash flows from operations will be sufficient to meet our anticipated cash needs for at least the next 12 months.

Our cash used in operations during the first quarter of 2019 of $0.4 million was due to net income of $1.5 million and net non-cash charges of $6.8 million, partially offset by an increase in our net operating assets and liabilities of $8.7 million. Non-cash charges primarily consist of depreciation and amortization of $5.2 million and share-based compensation of $1.3 million. The increase in our net operating assets and liabilities was primarily due to an increase in accounts receivable, net of $13.6 million and a decrease in accrued and other liabilities of $4.3 million, partially offset by a decrease in inventories of $6.9 million, a decrease in prepaid expenses and other assets of $1.4 million, and an increase in accounts payable of $0.9 million.

Our cash used in investing activities during the first quarter of 2019 of $4.8 million was due to capital expenditures.

Our cash used in financing activities during the first quarter of 2019 of $7.0 million was due to net payments on long-term debt of $7.4 million and share repurchases of $1.6 million, partially offset by net proceeds from the issuance of ordinary shares under our share-based compensation plans of $2.0 million.

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.

The critical accounting policies requiring estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements are identified and described in our annual consolidated financial statements and the notes included in our Annual Report on Form 10‑K for the year ended December 28, 2018 (our “Annual Report”).

Currently, substantially all of our sales and arrangements with third‑party suppliers provide for pricing and payment in U.S. dollars and, therefore, are not subject to material exchange rate fluctuations. As a result, we do not expect foreign currency exchange rate fluctuations to have a material effect on our results of operations. However, increases in the value of the U.S. dollar relative to other currencies would make our products more expensive relative to competing products priced in such other currencies, which could negatively impact our ability to compete. Conversely, decreases in the value of the U.S. dollar relative to other currencies could result in our foreign suppliers raising their prices in order to continue doing business with us.

While not currently significant, we do have certain operating expenses that are denominated in currencies of the countries in which our operations are located, and may be subject to fluctuations due to foreign currency exchange rates, particularly the Singapore dollar, Malaysian Ringgit, British Pound, and Euro. Fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our statements of operations. To date, foreign currency transaction gains and losses have not been material to our financial statements, and we have not engaged in any foreign currency hedging transactions.

We had total outstanding debt of $197.4 million as of March 29, 2019, exclusive of $3.7 million in debt issuance costs, of which $8.8 million was due within 12 months. The outstanding amount of debt included elsewhere in this report is net of debt issuance costs.

We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. The interest rate on our outstanding debt is variable based on LIBOR, the Prime Rate, or the Federal Funds Rate. A hypothetical 1% change in the interest rate on our outstanding debt would have resulted in a $0.5 million change to interest expense during the first quarter of 2019, or $2.0 million on an annualized basis.

As required by Rule 13a‑15(b) under the Exchange Act, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act) as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. We evaluated the effectiveness of our disclosure controls and procedures as of March 29, 2019, with the participation of our CEO and CFO. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of March 29, 2019.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, a company’s principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate. If we cannot provide reliable financial information, our business, operating results and share price could be negatively impacted. There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the first quarter of 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

For a discussion of legal proceedings, see “Note 1 – Basis of Presentation and Selected Significant Accounting Policies, Commitments and Contingencies” in the Notes to Financial Statements (Unaudited) included in this report.

There have been no material changes in our risk factors from those disclosed in our 2018 Annual Report. These risk factors could materially and adversely affect our business, financial condition and results of operations, and the trading price of our ordinary shares could decline. These risk factors do not identify all risks that we face – our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.

Information related to repurchases of our ordinary shares during the three months ended March 29, 2019 is as follows:

	Total Number of Shares Repurchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program		Amount Available Under Repurchase Program (1)
	(dollars in thousands, except per share amounts)
Amount available at December 28, 2018							$	10,021
December 2018		43,500	$	16.17		43,500	$	9,317
January 2019		54,410	$	16.47		54,410	$	8,421
February 2019		—	$	—		—	$	8,421
March 2019		—	$	—		—	$	8,421
Quarter ended March 29, 2019		97,910	$	16.34		97,910	$	8,421

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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)


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

PART I
ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	1
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	12
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	17
ITEM 4.	CONTROLS AND PROCEDURES	17

PART II
ITEM 1.	LEGAL PROCEEDINGS	18
ITEM 1A.	RISK FACTORS	18
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	18
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	18
ITEM 4.	MINE SAFETY DISCLOSURES	19
ITEM 5.	OTHER INFORMATION	19
ITEM 6.	EXHIBITS	19

SIGNATURES		20

	March 29, 2019			December 28, 2018
Raw materials	$	80,257		$	90,713
Work in process		21,260			20,852
Finished goods		20,655			17,233
Excess and obsolete adjustment		(8,001	)		(7,692	)
Total inventories, net	$	114,171		$	121,106

	Three Months Ended
	March 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,164
Right-of-use assets obtained in exchange for new operating lease liabilities	$	—
Weighted-average remaining lease term of operating leases	3.8 years
Weighted-average discount rate of operating leases	4.5%

Large accelerated filer	☐	Accelerated filer	☒

Non‑accelerated filer	☐	Small reporting company	☐

2019	$	3,924
2020		5,103
2021		4,586
2022		4,049
2023		1,127
Thereafter		122
Total future minimum lease payments		18,911
Less imputed interest		(1,701	)
Total lease liabilities	$	17,210

2019	$	4,910
2020		4,873
2021		4,356
2022		3,820
2023		1,103
Thereafter		120
Total future minimum lease payments		19,182

	Number of Restricted Shares
	Time vesting			Weighted average grant date fair value
Unvested, December 28, 2018		192,300		$	22.64
Granted		6,912		$	21.68
Vested		(29,453	)	$	23.90
Forfeited		—		$	—
Unvested, March 29, 2019		169,759		$	22.38


Exhibit Number		Description

31.1*		Certification of Principal Executive Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.
32.1**		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.
32.2**		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

	ICHOR HOLDINGS, LTD.

Date: May 8, 2019	By:	/s/ Thomas M. Rohrs
		Thomas M. Rohrs
		Executive Chairman, Director and Chief Executive Officer (Principal Executive Officer)

Date: May 8, 2019	By:	/s/ Jeffrey S. Andreson
		Jeffrey S. Andreson
		President and Chief Financial Officer (Principal Accounting and Financial Officer)