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DATE

Monday, August 4, 2025 at 8:30 p.m. ET

CALL PARTICIPANTS

Chief Executive Officer — Jeff Andresen

Chief Financial Officer — Greg Swyt

Investor Relations — Claire [last name not stated in transcript]

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RISKS

CEO Andresen said, "hiring challenges we experienced starting halfway through the quarter, which limited our output of machine components," and confirmed these challenges have continued to impact output volumes in fiscal Q3 2025 to date.

Management said, "we are taking a more conservative view to our expected hiring ramp and guiding gross margin," indicating uncertainty in their ability to deliver on margin expansion without improved visibility.

CFO Swyt stated, "Non-GAAP net income tax expense of $3.2 million came in well above forecast, due primarily to the acceleration of the pillar two tax into [fiscal] Q2 2025." This negatively impacted non-GAAP EPS by $0.07 in the quarter.

TAKEAWAYS

Revenue: $240.3 million in non-GAAP revenue for fiscal Q2 2025, at the upper end of guidance, up 18% year over year, but 2% lower than the prior quarter.

Gross margin: Non-GAAP gross margin was 12.5% for fiscal Q2 2025, up 10 basis points sequentially, but at the low end of guidance due to hiring and retention issues.

Operating income: $6.1 million in non-GAAP operating income, with operating expenses approximately flat at $23.8 million for fiscal Q2 2025 compared to Q1.

EPS: $0.03 per share (non-GAAP) for fiscal Q2 2025, with results impacted by a $0.07 tax expense acceleration.

Cash and cash equivalents: Cash and equivalents totaled $92 million at the end of fiscal Q2 2025, down $17 million from Q1, with $7 million attributed to capital expenditures.

Total debt: $126 million in total debt and a net debt coverage ratio of 1.5x, well below covenant thresholds as of fiscal Q2 2025.

GAAP restructuring charges: $5.7 million for exit costs related to personnel, fixed assets, and facility costs across Q1 and Q2 2025 (GAAP), with additional charges possible in upcoming quarters.

Q3 guidance: Revenue guidance of $225 million to $245 million; non-GAAP gross margin expected at 12.5%-13.5% for fiscal Q3 2025 (ending date not specified in transcript); non-GAAP OpEx around $23.7 million; and non-GAAP EPS guidance between $0.06 and $0.18 on 34.4 million shares.

CEO succession: Andresen will remain CEO until the board appoints a successor and then shift to a strategic adviser role.

Product qualification milestones: First end-user qualification achieved for the flow control product, while valves reached a third customer qualification with production shipments initiated in fiscal Q2 2025.

Revenue run rate & outlook: Expansion beyond the current $240 million non-GAAP run rate has stalled year to date, due to slower EUV builds, reduced investments by a major US semiconductor manufacturer, and weak demand in nontraditional markets such as silicon carbide.

Internal supply constraints: Inability to ramp internal component supply is limiting non-GAAP margin realization and market share capture, so management continues to purchase externally to meet demand.

Proprietary product penetration: Next-generation offerings for flow control and valves are in development, intended to expand addressable markets and increase margin potential.

CapEx for 2025: Capital expenditures are still planned at about 4% of total revenue for 2025.

Full-year tax expense estimate: Expected non-GAAP income tax expense for full year 2025 is $5.6 million, nearly unchanged from prior guidance despite the Q2 timing shift.

SUMMARY

Ichor Holdings, Ltd.(ICHR 4.18%) attributed the non-GAAP gross margin shortfall in fiscal Q2 2025 to ongoing hiring and retention issues that limited output of machine components, a situation that has persisted into fiscal Q3 2025. Strategic focus remains on ramping internal supply for proprietary parts, with clear milestones in place: volume expansion above the $250 million run rate, further product qualifications, and full alignment of output to customer needs. The company confirmed multiple new product qualifications in fiscal Q2 2025, including a first-ever end-user qualification for the flow control product and the start of valve product production shipments—both seen as foundational for margin improvement. Guidance for fiscal Q3 2025 reflects little change in overall demand but a slightly front-weighted revenue profile for the fiscal year after Q2 acceleration, with a cautious stance on near-term gross margin improvement despite longer-term targets remaining intact. Guidance and commentary are based on non-GAAP measures. The announced CEO succession plan initiates a transition period, with Andresen remaining until a successor is named and subsequently assisting as a strategic adviser.

Capital expenditures and working capital investments were the primary reasons for the $17 million quarter-over-quarter reduction in cash in fiscal Q2 2025, with no indication of any material covenant breach risk.

$5 million of fiscal Q2 2025 revenue was pulled in from later periods in 2025, primarily due to industry build timing and customer patterns, resulting in a slightly lighter revenue outlook for the back half of the year.

Gross margin expansion in future quarters depends on both supply ramp and additional sequential top-line growth above the $250 million non-GAAP revenue run rate, as management is resisting raising margin guidance until these are achieved.

Management clarified that recent advanced packaging segment slowdowns are attributed to capacity coming online, not to a loss of market share.

Guidance acknowledges the potential for sequential non-GAAP gross margin improvement in Q4, even at similar revenue levels, but with reservations about predicting significant upside until fiscal Q3 2025 is delivered.

Section 232 tariffs on steel and aluminum continue to be passed through to customers, with management stating that their impact is better defined after recent regulatory clarifications.

Management confirmed its long-term 20% non-GAAP gross margin target, though further progress relies on ramping internal content, especially in high-IP flow control products.

INDUSTRY GLOSSARY

WFE (Wafer Fab Equipment): Capital equipment used in the fabrication of semiconductor wafers, serving as an industry demand indicator.

EUV (Extreme Ultraviolet lithography): Semiconductor manufacturing technology enabling finer patterning for advanced chip production.

Section 232 Tariffs: U.S. trade policy imposing duties on steel and aluminum imports, affecting supply chain costs in advanced manufacturing.

Full Conference Call Transcript

Jeff will begin with an update on our business, and then Greg will provide additional details about our results and guidance. Jeff will make a few additional remarks before opening the line for questions. I'll now turn over the call to Jeff Andresen. Jeff?

Jeff Andresen: Thank you, Claire, and welcome everyone, to our Q2 earnings call. Thanks for joining us today. This afternoon, along with our second quarter earnings release, we announced our CEO succession plans, which I will further discuss towards the end of our prepared remarks. Second quarter revenues of $240 million came in at the upper end of our expectations reflecting a modest acceleration of customer demand into the first half of the year. With the Q2 revenue upside driven primarily by our lower gas panel integration business, due to gross margin of 12.5% was at the lower end of our expectations for the quarter.

That being said, through most of the second quarter, we were on track to achieve the midpoint of gross margin guidance. If not for the hiring challenges we experienced starting halfway through the quarter, which limited our output of machine components, today, we would have been announcing Q2 gross margins of over 13%. We continue to face hiring and retention challenges, which has continued to impact our output volumes in the third quarter to date. Ramping internal supply is a key enabler of the strong gross margin flow through. Therefore, as we focus on securing the nest headcount in our US machining operation, we are proactively reducing costs elsewhere in the organization.

As we reflect on the customer demand environment, industry and peer reports continue to indicate that 2025 will be a modest growth year for wafer fab equipment or WFE, and with our first half revenues up 20% year over year, we continue to expect our revenue growth this year will outperform overall WFE growth for 2025. So while revenue growth outperformance versus the industry is an expected highlight of our financial performance this year, the most critical operational priority for Ichor Holdings, Ltd. in 2025 is bringing our internal component supply fully up to speed in order to meet strong customer demand and increasing momentum qualifying our proprietary component products.

This is what we absolutely must accomplish in order to see the benefits of the new product wins through the P&L via strong flow through and gross margin expansion. Our new product strategy is taking hold and gaining traction. With continued new customer qualifications, as we successfully ramp our internal supply, we are confident that our strategies will materialize in stronger gross margins as we progress forward. In order to track our progress, here are some key benchmarks to look for from us over the next few quarters. The first is building momentum in our top line.

Year to date, further expansion of our revenue scale beyond the current $240 million run rate has been stalled by a slowing EUV build, reduced investments by a major US semiconductor manufacturer, and the continued lack of demand for additional capacity in some of our nontraditional markets such as silicon carbide. In order to see our structural improvements to gross margin materialize, we need the additional tailwind of revenue momentum above the $250 million run rate, which is what we had planned for in 2025 as we entered the year. The next sign of progress will be continued qualifications of our new products by the end device manufacturers.

And finally, progress will continue as we provide updates that we have scaled our internal supply to sufficient levels and that our output is aligned with our customer needs and cost targets. Turning to our momentum qualifying additional proprietary components with our key customers, we made meaningful progress across multiple fronts in Q2: qualification, commercialization, and market expansion. Most notably, we achieved a major milestone with the successful qualification of our flow control product at a key end user. This marks our first end user qualification for this product line, which serves as a strong validation of its performance in high-demand production environments. We believe this success lays the foundation for broader adoption and additional end customer qualifications.

We also reached an important inflection point with our valve product line. During the quarter, we secured a third customer qualification and we're actively working toward a fourth. That said, we are intentionally pacing the fourth qualification to align with our internal capacity ramp. This ensures that we can support volume demands without compromising quality or delivery commitments. Importantly, we began shipping valves in production volumes this quarter, a key milestone in scaling commercial success and realizing the margin benefits of internal sourcing. In parallel, we are making steady technical and operational progress on two new proprietary component products, which are designed to expand our addressable markets for both flow control and valves.

These next-generation offerings will allow us to serve a broader range of applications and customer needs, further increasing our value across the semiconductor supply chain. As we move into the second half of the year, we remain focused on expanding manufacturing capacity and aligning production to meet our targeted product margins. For Q3 specifically, with our current visibility, our revenue guidance remains in the same range as we provided for Q2 a quarter ago. The customer demand environment has remained relatively steady since May, and our full-year outlook is largely unchanged.

The key differences between how we are looking at 2025 now compared to a quarter ago are first, the Q2 revenue pull-in now indicates 2025 is likely to be a slightly front-half weighted year. While the second half customer demand environment hasn't changed materially, I would also add that the accelerations of demand leading to a stronger second quarter have now slowed a bit in advance of an expected slower quarter in December for etch and deposition. Additionally, we are marginally less confident about a few areas of potential upside materializing within this calendar year. Next and more meaningful to our outlook, we are taking a more conservative view to our expected hiring ramp and guiding gross margin.

And for the third quarter, we are providing a similar range of expectations as we did for Q2. While we remain wholly confident that our strategy will materialize in steady progress towards our longer-term gross margin targets, we need to have improved visibility toward a more meaningful and sustainable top-line sequential growth in addition to achieving our product cost targets before we will significantly raise the bar on our expectations for gross margin expansion. While we currently expect to deliver sequential improvements to our gross margin for the fourth quarter even on similar revenue levels, at this time, we will refrain from guiding significantly stronger gross margins until we deliver the expected gross margin performance for Q3.

With that, I'll turn it over to Greg to recap our Q2 results and provide further details around our financial outlook. Greg?

Greg Swyt: Thanks, Jeff. 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's a useful financial supplement available on the investor section of our website that summarizes our GAAP and non-GAAP financial results. Second quarter revenues were $240.3 million at the upper end of guidance, up 18% year over year and 2% lower than Q1.

The gross margin for the quarter was 12.5%, an increase of 10 basis points from Q1, but at the low end of expectations largely due to hiring challenges limiting our ability to achieve the expected ramp of our machine components. With operating expenses roughly flat to Q1 at $23.8 million, operating income for Q2 was $6.1 million. Our net interest expense was aligned with our expectations at $1.6 million. However, our non-GAAP net income tax expense of $3.2 million came in well above forecast due primarily to the acceleration of the pillar two tax into Q2. For the full year, our estimated income tax is currently $5.6 million compared to the $6 million estimates as of May.

Therefore, while the full-year tax estimate is largely unchanged, the acceleration into Q2 impacted EPS by $0.07. The resulting EPS for the quarter was $0.03 per share. In our GAAP results, you may note that year to date in 2025, we have been executing towards various strategies to consolidate and align our global operations capacity with our customers' largest global production and supply chain centers. Between Q1 and Q2, we recorded charges of $5.7 million for exit costs related to personnel, fixed assets, and facility-related costs. We anticipate there may be additional charges in Q3 and Q4 as we complete the analysis.

Turning to the balance sheet, our cash and equivalents totaled $92 million at the end of the quarter, down $17 million from Q1, reflecting working capital investments as well as $7 million in capital expenditures. Our planned CapEx investments for 2025 are still expected to total about 4% of revenue. Our total debt at quarter end was $126 million and our net debt coverage ratio was 1.5 times, well below any potential threshold for covenants. Now I will discuss our guidance for 2025. With anticipated revenues in the range of $225 to $245 million, we expect our Q3 gross margins to be between 12.5-13.5%.

We expect Q3 operating expenses to be approximately $23.7 million, and we expect Q4 OpEx to be at a similar level. Net interest expense for Q3 and Q4 are expected to be approximately $1.6 million per quarter. We expect to record a tax expense in both Q3 and Q4 of approximately $900,000, reflecting our current forecast for a non-GAAP tax expense of $5.6 million for the full year. Finally, our EPS guidance range for Q3 of $0.06 to $0.18 reflects a share count of 34.4 million shares. I will now turn the call back over to Jeff.

Jeff Andresen: Thanks, Greg. Before turning the call over to Q&A, I'd like to say a few words about the CEO succession plan we announced today. I joined the company in late 2017 as CFO. And after first becoming the company's president, I took over as CEO just as the COVID shutdowns were beginning to roll out in early 2020. There's no question that the operational challenges of the past five years have been greater than at any period in recent memory, and I am immensely proud of our successes. Winning multiple new product qualifications, after embarking on Ichor Holdings, Ltd.'s first-ever branded product development strategy.

During the same period, we have integrated five acquisitions and successfully completed the recapitalization of our balance sheet. I love this company. And I strongly believe that we have many opportunities to transform the company's profit generation as we continue to bring our branded products to market. I also believe that the time has come to begin the search for a new leader who can drive Ichor Holdings, Ltd. to new levels of success. Ichor Holdings, Ltd. is a strong leader in the industry, enjoying tremendous customer partnerships and an amazing team of employees around the globe.

This strong foundation will be attractive to the next leader of Ichor Holdings, Ltd., and in order to ensure a seamless transition, the board and I have entered into a transition agreement where I will remain CEO until my successor is identified and then continue as a strategic adviser to the company and our new CEO, to assist in the leadership succession process. We have an excellent board of directors, and I have full confidence that they will find an outstanding new leader for the company. Operator, we are now ready for questions. Please open the line.

Operator: Thank you. We will now be conducting a question and answer session. A confirmation tone will indicate that your line is in the question queue. We ask analysts to limit themselves to one question and a follow-up so that others have an opportunity to do so as well. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be One moment, while we poll for questions. Our first question comes from Brian Chin with Stifel. Please proceed with your question.

Brian Chin: Hi there. Good afternoon. I guess, firstly, Jeff, definitely wish you all the best. Sounds like you'll be continuing on these calls. But as you wind your time down here, just wanna thank you for that. And, also, thanks for letting us ask a couple questions.

Maybe to start with gross margins, can you unpack the dynamic that occurred, it sounds like mid-quarter in Q2 that took you off that trajectory, maybe that could have taken you towards the midpoint or so of the gross margin guide, but maybe kind of unpack what happened there in terms of the hiring and maybe some turnover and then tie tied into that, I guess, is how that relates to sort of the uptick in OpEx sequentially. Above plan? Yeah.

Jeff Andresen: So you know, at the beginning of the quarter, we were we were doing pretty good at bringing people in. And then as you bring them in, these are very unique jobs. This is most our US operation in Minnesota. A lot of them go into the clean room to do the post we'll call it post machining. I'd say did a pretty good job of getting the machinist. We have a lot of machine parts, but we couldn't get them all built. They're all off shift, and we had some turnover that was offsetting what we were bringing in.

So by about the middle of the quarter or so, we just really had netted as many people as we needed. And it kinda continued towards the end of the quarter with very few folks. We've changed some approaches to how we hire in the offshifts and shift differentials, things like that. So I would say entering this quarter, it's a little bit better, but it's where we would have wanted to be a quarter ago. So it did start pretty good, but then the retention side of it, once they put on bunny suits and get in a clean room, we weren't able to retain everybody that we hired during the quarter.

Brian Chin: Got it. And then and that's sort of the Well, it spiked up in the OpEx. It's a little unique around some of our we've Kinda the spike up in the OpEx and sort of coming back down in Q3.

Jeff Andresen: We've had some higher health care costs. We had originally planned there in the year. Everything else was pretty much aligned with it. But the it's not related necessarily to the hiring. In Minnesota. And having said that, you know, most of our had we stayed on the hiring trajectory that we saw in the first, say, month or so without the turnover, I think we would have been announcing pretty good better than our midpoint of guidances, how we looked at it. So taken a little more conservative approach on our hiring ramp, this quarter, and that's why the guidance is around 13% for gross margin.

Operator: Our next question comes from Krish Sankar with TD Cowen. Please proceed with your question.

Krish Sankar: Yes. Hi, thanks for taking my question. And just same here. Good luck and we're definitely gonna miss you and your insights. I have two questions. One is on demand. Just kinda curious into Q3, where are you seeing the demand coming in from? If you have that visibility, is it coming from NAND? Is it China? You know, I understand you already said that EUV is lower and probably in WFE is lower. So I'm just kinda curious where do you see the incremental demand coming from I'm gonna add a follow-up.

Jeff Andresen: Yeah. I think when you say incremental or the strength of demand into the half is what you probably are, I think, assuming. I think foundry logic still strong, high bandwidth memory. We can see it. I'd say maybe the advanced packaging has plateaued and then I think the NAND is continuing. We can clearly see that the NAND investment is continuing into the back half. I mean, you look at us pulling about $5 million forward, you know, it's slightly down in the back half, and probably the biggest changes really have probably been around again, a little bit of a reduction in our litho business, which is well understood, and build volumes are down.

And then I would say a large US OEM continues to push out some of their CapEx investments here in The US. And I'd say everything else kind of held its own.

Krish Sankar: Got it. Got it. And then on the gross margin side, you know, I'm just kinda curious because you know, this quarter, I understand the machining employment as an issue. Last quarter, the sort of proprietary content I understand some of this is probably on execution versus what you can manage. But bigger picture, is there any other issue you see on gross margin? In other words, are your big semi cap customers trying to put more pricing pressure on you compared to in the past given that their customer base consolidating? Or has any of this filtered down, or do you think this is all manageable and just, like, as you termed it last quarter, growing pains?

Jeff Andresen: I would say our inability to execute and get the ramp to meet the customer demand that we have in front of us is hitting us both in the profitability we could get with the revenue numbers that we were projecting as well as we talked about on the last call, we're still buying some externally that we're eventually gonna make. Those two will move the needle fastest. I would say pricing pressure is always there. It hasn't really changed. Very much. Over the last year or so. It's so it's always something you try and work on. With your customers reducing their costs and stuff.

I would say from a tariff perspective, that's getting passed on, it's a lot better understood now. And so I think that is well understood by our customers that's something that'll be passed on. Thanks, Jeff. Thanks, Chris.

Operator: Our next question comes from Craig Ellis with B. Riley Securities. Please proceed with your question.

Craig Ellis: Yes. Thanks for taking the and Jeff, I'll echo the sentiment of the other two analysts just expressing thanks for all the help. Over the years and wishing you the best. As you evolve to the your role at some future time. Yeah. You're welcome. I wanted to just go back to the last line of inquiry because it sounds like there may be some issues just impacting your ability to deliver product that the time that you'd like.

And so the question is, are there any market share issues that you've seen arise either as a result of some of the things that surfaced in one q or any of the hiring or retention related issues that you're seeing in two q?

Jeff Andresen: Well, I'd say from a market share, it's it's largely you would think about it the internal supply. You're still buying some externally. We're not capturing that market share until we get the operation ramped up. And so that's where we're seeing it. I would say kind of what we would call on our external revenue. We're not seeing any shifts there.

Craig Ellis: Got it. And then I just wanted to go back to the demand view and the fact that we might be down a little bit second half, half on half, I thought we had heard from another large front end company a view that WIP this year was evolving to a higher level, more positive level, when potentially leading towards 10% WFP growth versus 5% your revenues would track well versus that. But I'm just trying to reconcile the dissonance between those two and wondering if there's any help you can provide.

Jeff Andresen: I don't know that we disagree with them. I think we've always kind of thought it was gonna be a 105 or better. I think the wildcard seems be China again. As a strength, will benefit as our customers sell end users and things like that. But our growth year over year is still outpacing, you know, that level of WFE. So I don't know that it's materially changed. I'll we'll tell you there's a wide range of expectations out there. Some are higher than the kind of the 5% to 10 that have been discussed on prior calls.

Craig Ellis: So Okay. Thanks, Jack.

Operator: Our next question comes from Charles Shi with Needham and Co. Please proceed with your question.

Charles Shi: Hi, Jeff, Greg. Hey, Jeff. Similar to other analysts, I really enjoyed our conversation on the calls and in other various meetings with you over the past few years. I appreciate that. Thank you. Yeah. Maybe a question about the remainder of the year, the outlook. Looks like you are basically saying versus ninety days ago, there is some conservatism that the incremental conservatism out there I one thing you said really caught me I think you said there were some upside for the fiscal year. You thought that would could it materialize, but that looks like it's not. Sounds like it's more about revenue.

And may I ask what were the upsides you were expecting a little bit earlier this year? That you're now seeing?

Jeff Andresen: Yeah. Good question. I think what we've seen stopping it. We thought we would start to see build rates in our business start to go up in the fourth quarter. We haven't seen that yet. And I would say we've seen and, you know, we don't see all the sell through, but we've seen some of The US OEM stuff shipped out of fiscal year twenty five. And so those are probably the two biggest Cadillac catalyst to don't know. It's got it's about a $5 million haircut in our outlook from a quarter ago. So versus, I don't know, $9.50 or $9.60 roll up, that's pretty small range.

There could be things that pop up into the fourth quarter, and we'll we'll give you an update on that. On the next conference call. But those are the two big moving pieces we've seen since the last call.

Charles Shi: Got it. Got it. So a little bit litho, a little bit depth and edge sounds like that word upside that no longer really seeing at the moment. So, Jeff, the other question, you said you now expect a second half going to be slightly lighter than first half. I would think before Lam reported, I would agree with you about that. But now Lam had a huge Q3 guidance upside, and that they no longer see second half being really lighter than the first half.

And if I look at AMAT, and other customers of yours, I'm kinda scratching my head a little bit because almost no comp no customers of yours are actually seeing second half in, like, lighter right now. So how do I how do I spread the differences off here? And what any insights there? Thanks.

Jeff Andresen: Yeah. Well, one is I think it's a relatively small moving number versus our last time, and I think some of this is really about the timing of when we ship Okay? So we ship about a month before they can recognize revenue, and I would say we had a pretty healthy tail end of the quarter, which is why you saw the 5,000,000 pulled in. Had that not pulled forward, then this is mostly timing. We'd be pretty equally weighted. And our customers don't remember, our customers don't have exactly the same profile of earnings revenue. Excuse me. Each one's a little bit different.

So I'd say we're pretty aligned to what we see at each one of those and what they've talked about. So

Charles Shi: Thank you. Maybe the last question. Thank you. You didn't really bring it up this time. It's about tariffs. Especially the steel and aluminum. Related tariffs. Are you seeing any impact or any change in your view on the on the on the degree or magnitude of the impact Thank you.

Jeff Andresen: Yeah. It's in section two thirty two is what you're talking about. It's 50%. The original two thirty two is got duty drawbacks. We work with our customers, and we pass it on. And then they are able to draw it back for whatever leaves The US. The second wave that started in I think, April, you can't do duty drawback, and that's where we're seeing it and passing around customers. I would say the regulations are much more clear now. It's not a 100% of the value that comes in. It's it's driven by weight and the percentage that's non US source metals. And so we've done a lot of work on that area.

And so we're we're working to reduce the impact across our supply chain and customers. So it hasn't changed, but I think we have clear views of how to manage it.

Charles Shi: Thank you. That's all from me.

Jeff Andresen: Yeah. Thanks.

Operator: Our next question comes from Tom Diffely with D. A. Davidson. Please proceed with your question.

Tom Diffely: Yeah. Good afternoon. Thank you for a couple of questions here. Jeff, curious, you know, the issue that you're seeing with both the hiring and the retention, is this a new issue, or is this something you battle constantly?

Jeff Andresen: I would say we have ramped our machining operation in Minnesota in the past. I mean, go back seven, eight years. We've had different cycles, and this has been a little bit more challenging because we were chasing machinists. Now we have what we would call post machining operations, so a lot more assembly work and things like that where you're in the clean room. And they're off shift. So we run 24 by seven. There. So they've been a little more challenging than the last two ramps, I would say.

Tom Diffely: Is it just a matter of I guess, finding the people who are willing to do the jobs specifically, or is it, you know, higher wages? Or what are the options here?

Jeff Andresen: Well, wages, we can measure and adjust for, and we do that annually. And then we'll we look at it during the year if we see any kind of compression. In skilled workforce. A little bit, but not a whole heck of a lot there. I would say it's the offshift, and it's the clean room and a bunny suit and all that stuff. And so we've done a better job of ensuring they understand what that's really like before they take the jobs and move into it.

Tom Diffely: So Oh, okay. Got it. Makes sense. Then as a Greg, know, one of your peers talked about a pretty big tax impact from the one big beautiful bill this year, and we kinda touched on it very briefly, but I'm curious as you go through that new bill, are you seeing any meaningful tax implications going forward?

Greg Swyt: Hey, Tom. Good question. Not on the near term. Mainly because of our where we are in our tax position in The US. We will not see at least for a period of time, any material benefit on the various factors that we could take the a benefit on, like depreciation, things like that. So there is no benefit for us at least in the near term that we're anticipating.

Tom Diffely: Okay. That'll help. Thank you. Yeah.

Jeff Andresen: That'll flow through the PNL because of the NOLs. We'll take advantage of it and use it later. So

Tom Diffely: Yep. Okay. Makes sense. Thank you.

Operator: Our next question comes from Christian Schwab with Craig Hallum. Please proceed with your question.

Christian Schwab: Great. Jeff, good luck on whatever is next. You know, a year ago, we talked about, you know, this tremendous movement into, you know, sourcing internally and driving 20%, maybe 20% plus type of gross margins. Is that something that you guys still feel is an opportunity set. Obviously, with a smoother manufacturing, but also higher revenue, but save the business. We have a good WFE in the future. We get to 300,000,000 a quarter plus or minus. You know, it's 20% gross margin still the bogey or do you think that maybe that was too optimistic when you said it before?

Jeff Andresen: Well, I well, one is I would say it is not something that we can attain. I would say we have to attack it, and it's too One is the passive components primarily where we've been getting the qualifications in the valves and the substrates and fittings. And along the way. Those will move us up but until we actually get some level of the flow controller and our prepared comments, we actually now have one of our first full integrated Ichor Holdings, Ltd. content gas boxes that got qualified in an in our customers' end customer.

So as that now kind of goes into production and the timing of their production ramp, which is not clear to us right now, that is what's gonna move us up into the flow controllers because you don't need a $100,000,000 of those to move the needle. Those will be our highest margin, highest IP content product going forward. So, no, 20% is still I hate to use the word bogey. It's the target for the company to get to.

Christian Schwab: Great. Great. And then and as we as we look to the second half of the year, I mean, there any puts or takes you know, that you could imagine where gross margins get any worse than the current kind of, you at 12 and a half, 13% level other than you know, revenue to see by a dramatic amount.

Jeff Andresen: Yeah. I would say if you go back a quarter, we had some issues. And by the way, hiring is operational. But when we're down to getting the people in place, to meet the demand, it's it's not it's it's not production and getting the cost down and all that. We were making progress along all of the fronts that we have been attacking since the you know, the beginning of the year. And so those are progressing well. I think once we get the people in place, we still have some still have some time to go. I wouldn't say all of our products will be at our target cost.

Until probably end of the first quarter of next year. But, you know, substrates are doing very, very well, and they're very close. And the fittings are moving in the right direction. So it's valves is what we're attaching, and this is the first quarter of production shipments for those.

Christian Schwab: Great. Thank you. No other questions. Thanks. Thanks.

Operator: Our next question comes from Edward Yang with Oppenheimer. Please proceed with your question.

Edward Yang: Hi, Jeff. Just wanted to wish you all the best. Really appreciated learning from you. You'll be missed.

Jeff Andresen: Thank you.

Edward Yang: My question, you mentioned events packaging plateaued in response to an earlier question. I just wanted to unpack that a little bit more. Is that end market driven? Or are you seeing market share between your customers?

Jeff Andresen: No. I think most of, the biggest side is that is advanced packaging, plating, tool that we do and that has had a tremendous amount of growth. Both sides of that and cleaning tool that we support have had great high trajectory growth for maybe the last two years, and I would say they're just starting to slow now as the capacity is coming online in those areas. So we don't believe that there's any kind of share shift there. Today. I mean, our share is not as big as it is in gas panels. That's for sure.

Edward Yang: Got it. And Okay. It sounds like one of your public competitors also talking about increasing their own internal content, local content, sounds like a familiar strategy. Just wondering, as both you and this competitor become more vertically integrated, are there any cross exposure or possibility of displacement where one or the other of you two sell to each other?

Jeff Andresen: We sell to each other today certain areas because if they build boxes and they got a component that's qualified for us, and they buy it from us. We buy heaters from them. So that's that's that's been occurring for years and years and years between the two of us. But, yeah, I have noticed their comments have been a little more aligned with the branded strategy that we have in bringing products together. I think it's an that's what the market is looking for.

Edward Yang: K. Thank you.

Jeff Andresen: You bet.

Operator: Our next question comes from Brian Chin with Stifel. Please proceed with your question.

Brian Chin: Hi there. Just I'm back. I'm gonna get cut off. Well, early earlier in the queue. Yeah. Just one clarification, Jeff. The I think you sort of suggested that if I heard correctly, that in the December, maybe consistent with some of your customer patterns, December could be lower than September. And that the second half would be a little bit down from a first half weighted spending And are we are we down kind of, like, mid single digit decline, half on half? Mod moderate?

Jeff Andresen: Yeah. I don't even know if it's it's low single digits is what I would I would say. It's it's about 5,000,000 off of $4.80 something. So it's it's 1%. It's it's very it's very close to flat. You know, if we have a similar quarter you could almost assume that it's timing.

Brian Chin: Okay. Got it. I missed some of that, but sounds like you said like, a 1% decline in December or something.

Jeff Andresen: Percent. I would say that's probably in the timing of just when our customers are, you know, building things versus us.

Brian Chin: Got it. And then just to I also wanted to touch on the flow control qualification. That is kind of a milestone relative to important part of the insourcing strategy. And you said sort of customer's customer. Can you give us a sense of that sort of like a logic or DRAM application?

Jeff Andresen: Well, what I would I would I say and I think we've we've we've not said who the customer is, but we have said that these are almost all targeted on advanced logic opportunities.

Brian Chin: Okay. Got it. Maybe just one last quick thing because I'm back on the can you give us it sounds like from listening to the other questions that you know, some of some of the slots that may have pushed into know, out of the year in some cases, kinda tied into maybe DRAM advanced packaging. Something like that.

Jeff Andresen: And that sure. I follow. You're you're just talking about this that the North America IDM, I would say. That's probably logic.

Brian Chin: Okay. Got it. Yeah. No worries. I appreciate it. Thank you.

Jeff Andresen: Okay. Thanks. Bye.

Operator: We have reached the end of our Q&A session. And I would now like to turn the floor back over to Jeff for closing comments.

Jeff Andresen: I want to thank you for joining us on our call this quarter. I'd like to thank our employees, suppliers, customers and for their ongoing dedication and support. Our upcoming Q3 investor conferences include Oppenheimer's virtual conference next week, followed by Needham Semiconductor Conference, Jefferies in Chicago, and finally, B. Riley's Tech Conference in New York. After that, we look forward to our next quarterly update in early November. For our Q3 earnings call. In the meantime, please feel free to reach out to Claire directly if you would like to follow-up with us. Operator, that concludes our call.

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