Ichor's Profit Jumps as Cash Burn Grows: Rapid Earnings Reaction
Key Points
Ichor swung to a GAAP profit as sales rose 37% from a year ago.
Rising inventory and unpaid customer bills pushed free cash flow deep into the red.
The fourth-quarter outlook calls for more sales growth, but GAAP earnings guidance is flat.
Ichor Holdings (NASDAQ:ICHR) earned $20.9 million in its fiscal third quarter, a sharp turn from a $22.9 million loss a year ago. Shares rose about 3% in early after-hours trading. The sales ramp now produces real profit, but it's eating cash as inventory and unpaid customer bills pile up.
Key numbers
- Revenue: $328.7 million, up 37% from a year ago and 12% from last quarter.
- GAAP gross margin: 15.8%, up from 13.9% last quarter.
- GAAP diluted EPS: $0.55, compared with $0.03 last quarter.
- Free cash flow: negative $39.5 million, compared with negative $23.6 million last quarter.
What it means
Ichor builds the gas delivery systems inside chipmaking tools, and its plants carry heavy fixed costs. When volume climbs, those costs spread across more units and margins rise. Management also credits shifting work into its main factories and selling more of its own parts. Operating costs fell even as sales grew, so operating margin nearly tripled from last quarter, to 6.9%.
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The catch is cash. Inventory and receivables together soaked up about $75 million in the quarter. That's partly normal for a supplier gearing up. But receivables grew much faster than sales, which suggests slower customer payments or shipments bunched late in the quarter. Last quarter's stock sale gives Ichor room.
The fourth-quarter outlook calls for more sales growth, but the GAAP earnings midpoint is $0.55 -- flat with this quarter. Management's promise of rising earnings rests on adjusted figures. This quarter's GAAP profit got help from a light tax bill and lower stock-based compensation, and the outlook assumes that expense rises again.
What to watch next
Watch whether free cash flow turns positive as the ramp matures. Also check whether receivables grow in line with sales.
David Kretzmann has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.