Q2 2026 Ichor Holdings Ltd Earnings Call

August 3, 2026

Speaker #2: Good day, ladies and gentlemen, and welcome to Ichor's second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode.

Operator: Good day, ladies and gentlemen, welcome to Ichor's Q2 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Claire McAdams, investor relations for Ichor. Please go ahead.

Speaker #2: Later, we will conduct a question-and-answer session, and instructions will be given at that time. If anyone should require operator assistance, please press *0 on your telephone keypad.

Speaker #2: As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Claire McAdams, Investor Relations for Ichor.

Speaker #2: Please go ahead.

Speaker #3: Thank you, operator. Good afternoon, and thank you for joining today's second quarter 2026 conference call. As you read our earnings press release and as you listen to this conference call, please recognize that both contain forward-looking statements within the meaning of the federal securities laws.

Claire McAdams: Thank you, operator. Good afternoon, thank you for joining today's Q2 2026 conference call. As you read our earnings press release, and as you listen to this conference call, please recognize that both contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, and which could cause actual results to differ materially from such statements. These risks and uncertainties include those spelled out in our earnings press release, those described in our annual report on Form 10-K for fiscal year 2025, and those described in subsequent filings with the SEC. You should consider all forward-looking statements in light of those and other risks and uncertainties. Additionally, we will be providing certain non-GAAP financial measures during this conference call.

Speaker #3: These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, and which could cause actual results to differ materially from such statements.

Speaker #3: These risks and uncertainties include those spelled out in our earnings press release, those described in our annual report on Form 10-K for fiscal year 2025, and those described in subsequent filings with the SEC.

Speaker #3: You should consider all forward-looking statements in light of those and other risks and uncertainties. Additionally, we will be providing certain non-GAAP financial measures during this conference call.

Speaker #3: Our earnings press release and the financial supplement posted to our IR website each provide a reconciliation of these non-GAAP financial measures to their most comparable GAAP financial measures.

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

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

Speaker #3: On the call with me today are Phil Barros, our CEO, and Greg Swyt, our CFO. Phil will begin with an update on our business, and then Greg will provide additional details about our results and guidance.

Speaker #3: After the prepared remarks, we will open the line for questions. I'll now turn the call over to Phil Barros. Phil,

Speaker #4: Thank you, Claire, and welcome, everyone, to our Q2 earnings call. Three quarters ago, we laid out our strategy to strengthen Ichor's operating model, expand margins, and position the company to outperform in the next semiconductor growth cycle.

Phil Barros: Thank you, Claire, and welcome everyone to our Q2 earnings call. Three quarters ago, we laid out our strategy to strengthen Ichor's operating model, expand margins, and position the company to outperform in the next semiconductor growth cycle. Our results today demonstrate that we are delivering against that plan. Revenue of $295 million increased 15% sequentially, with gross margins up 130 basis points. We more than doubled EPS compared to Q1. The additional revenue growth we had guided for Q2 was instead recognized one week later due to isolated part shortages that we have since resolved, and we are now driving significantly more growth in the H2 compared to our expectations a quarter ago.

Speaker #4: Our results today demonstrate that we are delivering against that plan. Revenue of $295 million increased 15% sequentially, with gross margins up 130 basis points.

Speaker #4: We more than doubled EPS compared to Q1. The additional revenue growth we had guided for Q2 was instead recognized one week later, due to isolated part shortages that we have since resolved.

Speaker #4: And we are now driving significantly more growth in the second half compared to our expectations a quarter ago. Gross margin of 14.1% exceeded the high end of guidance, with improved product mix as we continue to grow our component revenues and non-semi business, as well as improved product margins as we execute our strategic footprint realignment during this historic ramp.

Phil Barros: Gross margin of 14.1% exceeded the high end of guidance with improved product mix as we continue to grow our component revenues and non-semi business, as well as improved product margins as we execute our strategic footprint realignment during this historic ramp. The gross margin upside in the quarter translated to $0.34 in earnings at the upper end of our guidance range, and our highest quarterly earnings in three years, demonstrating that the strategic actions that we are taking are translating into meaningful financial results. We also completed the entire ATM equity offering during the quarter, providing significant flexibility for us to make strategic investments that will enhance our results going forward. This brings me to the underlying demand environment, which continues to strengthen since our last earnings call. Ichor's revenue growth in 2026 is now expected to be even stronger than we communicated just three months ago.

Speaker #4: The gross margin upside in the quarter translated to 34 cents in earnings at the upper end of our guidance range, and our highest quarterly earnings in three years.

Speaker #4: We are demonstrating that the strategic actions we are taking are translating into meaningful financial results. We also completed the entire ATM equity offering during the quarter, providing significant flexibility for us to make strategic investments that will enhance our results going forward.

Speaker #4: Which brings me to the underlying demand environment, which continues to strengthen since our last earnings call. Ichor's revenue growth in 2026 is now expected to be even stronger than we communicated just three months ago.

Speaker #4: We have now reported 15% sequential revenue growth in each of the first two quarters of the year. Looking ahead, the steepening ramp in customer demand provides us with strengthening visibility, indicating sequential revenue growth exceeding 10% in each of the next two quarters.

Phil Barros: We have now reported 15% sequential revenue growth in each of the first two quarters of the year. Looking ahead, the steepening ramp in customer demand provides us with strengthening visibility, indicating sequential revenue growth exceeding 10% each of the next two quarters. Our current demand forecast, along with our assessment of supply chain readiness, altogether supports our expectations for the H2 revenue volumes of at least 25% higher than the H1. Our confidence in both the magnitude and the duration of this growth cycle is higher today than at any point during this year. The technology transitions driving the demand remain unchanged. Investments in advanced etch and deposition applications supporting AI infrastructure, gate-all-around architectures, advanced memory, and leading edge process technologies continue to favor Ichor's portfolio of highly engineered gas and fluid delivery solutions. We believe Ichor is well positioned to capitalize on these technology transitions.

Speaker #4: Our current demand forecast, along with our assessment of supply chain readiness, altogether supports our expectations for second-half revenue volumes to be at least 25% higher than the first half.

Speaker #4: Our confidence in both the magnitude and the duration of this growth cycle is higher today than at any point during this year. The technology transitions driving the demand remain unchanged.

Speaker #4: Investments in advanced etch and deposition applications supporting AI infrastructure, gate-all-around architectures, advanced memory, and leading-edge process technologies continue to favor Ichor's portfolio of highly engineered gas and fluid delivery solutions.

Speaker #4: We believe Ichor is well-positioned to capitalize on these technology transitions. For 2026 in particular, we expect revenue growth in alignment with the high end of WFE expectations.

Phil Barros: For 2026 in particular, we expect revenue growth in alignment with the high end of WFE expectations, which would be an increase of at least 30% over fiscal year 2025. Turning now to our strategic initiatives. Q1, we discussed our global footprint realignment and the actions we are taking to structurally improve our business. Today, we are demonstrating that these actions are translating into measurable financial results. Over the past two quarters, we have expanded gross margin to over 14%, exceeding our 100 basis points per quarter target while driving earnings to a three-year record.

Speaker #4: This would be an increase of at least 30% over fiscal year 2025. Turning now to our strategic initiatives—last quarter, we discussed our global footprint realignment and the actions we are taking to structurally improve our business.

Speaker #4: Today, we are demonstrating that these actions are translating into measurable financial results. Over the past two quarters, we have expanded gross margin to over 14%, exceeding our 100 basis points per quarter target.

Speaker #4: While driving earnings to a three-year record. This is exactly the type of operating leverage our business model can deliver as we execute our strategy.

Phil Barros: This is exactly the type of operating leverage our business model can deliver as we execute our strategy. Because our footprint realignment and operating model improvements are structural, we continue to drive another 100 basis points in further gross margin improvement in each of the remaining two quarters of the year, even after coming in above the high end of expectations for Q2. We are making meaningful operational improvements within our machining and component businesses, with product margin expanding significantly from Q1. These improvements are resulting from operational efficiencies and success of our product transitions, not merely by the increased factor utilization at these higher revenue volumes. We also saw product mix shift to a more favorable profile with strength in our proprietary products, higher value manufacturing service, and commercial space businesses. These improvements demonstrate exactly what we expect our operating model will deliver.

Speaker #4: Further, because our footprint realignment and operating model improvements are structural, we continue to drive another 100 basis points in further gross margin improvement in each of the remaining two quarters of the year.

Speaker #4: Even after coming in above the high end of expectations for Q2, we are making meaningful operational improvements within our machining and component businesses. With product margin expanding significantly from the first quarter, these improvements are resulting from operational efficiencies and the success of our product transitions, and not merely by increased factory utilization at these higher revenue volumes.

Speaker #4: We also saw product mix shift to a more favorable profile, with strength in our proprietary products, higher-value manufacturing services, and commercial space businesses.

Speaker #4: These improvements demonstrate exactly what we expect our operating model will deliver: higher proprietary content, higher internal manufacturing, greater operational efficiency, and stronger earnings leverage as revenue continues to grow.

Phil Barros: Higher proprietary content, higher internal manufacturing, greater operational efficiency, and stronger earnings leverage as revenue continues to grow. Our manufacturing transitions remain on schedule. We continue to increase the amount of proprietary Ichor content within the systems we build. We secured additional key qualifications during Q2, including for our high volume manufacturing site in Malaysia. This represents another important milestone in our product strategy. Every successful qualification expands our ability to manufacture internally, strengthens our competitive advantage, improves our returns over the long term. We are on track to our plans to qualify additional key components in Malaysia that will provide additional flexibility for us to optimize the supply chain, further ramp internal supply. This strategy is aimed at enabling even stronger execution for our customers, is a key element of our gross margin expansion plans. Importantly, we have now reached an inflection point.

Speaker #4: We are increasing the amount of proprietary ICHOR content within the systems we build. We secured additional key qualifications during Q2, including for our high-volume manufacturing site in Malaysia. This represents another important milestone in our product strategy.

Speaker #4: Every successful qualification expands our ability to manufacture internally, strengthens our competitive advantage, and improves our returns over the long term. We are on track with our plans to qualify additional key components in Malaysia, which will provide additional flexibility for us to optimize the supply chain and further ramp internal supply.

Speaker #4: This strategy is aimed at enabling even stronger execution for our customers, and is a key element of our gross margin expansion plans. Importantly, we have now reached an inflection point.

Speaker #4: Demand is not our growth constraint. Manufacturing capacity is not our growth constraint. And with continued success in our high-volume manufacturing sites, our ability to reduce Ichor's reliance on external supply will become a competitive advantage.

Phil Barros: Demand is not our growth constraint. Manufacturing capacity is not our growth constraint. With continued success in our high volume manufacturing sites, our ability to reduce Ichor's reliance on external supply will become a competitive advantage. Over the past year, we have invested aggressively in people, inventory, manufacturing capacity, and our global footprint to prepare for this significant ramp in demand. Those investments are now paying dividends. We have the capacity today to support $500 million in quarterly revenue. With targeted investments, we believe we can expand capacity within our existing footprint upwards of $3 billion annually, more than double our current run rate. Our incremental investment needs will be focused primarily on expanding production of our high-value proprietary components in order to eliminate pain points in our supply base. These same investments will enable us to achieve our targeted product mix and gross margin objectives.

Speaker #4: Over the past year, we have invested aggressively in people, inventory, manufacturing capacity, and our global footprint to prepare for this significant ramp in demand.

Speaker #4: Those investments are now paying dividends. We have the capacity today to support $500 million in quarterly revenue. With targeted investments, we believe we can expand capacity within our existing footprint to upwards of $3 billion annually, more than double our current run rate.

Speaker #4: Our incremental investment needs will be focused primarily on expanding production of our high-value proprietary components in order to eliminate pain points in our supply base. These same investments will enable us to achieve our targeted product mix and gross margin objectives.

Speaker #4: As we look ahead, our priorities remain clear: execute for our customers, complete our manufacturing transitions, continue ramping proprietary Ichor content, expand margins, and convert the exceptional demand environment into sustained earnings growth.

Phil Barros: As we look ahead, our priorities remain clear. Execute for our customers, complete our manufacturing transitions, continue ramping proprietary Ichor content, expand margins, and convert this exceptional demand environment into sustained earnings growth. The investments we have made over the past several years are positioning Ichor differently than any point in our history. We are becoming a structurally stronger company with more efficient manufacturing network, higher proprietary content, stronger earnings leverage, and the operational capacity to support our customers through what is likely to be the strongest growth cycle our industry has ever experienced. I've never been more confident in our strategy, our execution, or the opportunities that lie ahead. With that, I will now turn the call over to Greg to review the financial results in more detail.

Speaker #4: The investments we have made over the past several years are positioning Ichor differently than at any point in our history. We are becoming a structurally stronger company, with a more efficient manufacturing network, higher proprietary content, stronger earnings leverage, and the operational capacity to support our customers through what is likely to be the strongest growth cycle our industry has ever experienced.

Speaker #4: I have never been more confident in our strategy, our execution, or the opportunities that lie ahead. With that, I will now turn the call over to Greg to review the financial results in more detail.

Speaker #5: Thanks, Phil. Before I begin, I would like to emphasize that the P&L metrics discussed today are non-GAAP measures. These measures exclude the impact of share-based compensation, amortization of acquired intangible assets, non-recurring charges, and discrete tax items and adjustments.

Greg Swyt: Thanks, Phil. Before I begin, I would like to emphasize that the P&L metrics discussed today are non-GAAP measures. These measures exclude the impact of share-based compensation, amortization of acquired intangible assets, non-recurring charges, and discrete tax items and adjustments. There is a useful financial supplement available on the investor section of our website that summarizes our GAAP and non-GAAP financial results, as well as a summary of the balance sheet and cash flow information for the last several quarters. Q2 revenues of $294.8 million increased 15% sequentially. Isolated supply chain constraints that surfaced late in the quarter kept us from recognizing our full revenue forecast in time for the 26 June quarter-end. Instead, we surpassed $300 million in revenue for the 13 weeks ending 3 July. We have worked through these parts shortages as we drive for another significant growth quarter in Q3.

Speaker #5: There is a useful financial supplement available on the investor section of our website that summarizes our GAAP and non-GAAP financial results, as well as a summary of the balance sheet and cash flow information for the last several quarters.

Speaker #5: Second quarter revenues of $294.8 million increased 15% sequentially. Isolated supply chain constraints that surfaced late in the quarter kept us from recognizing our full revenue forecast in time for the June 26 quarter end. Instead, we surpassed $300 million in revenue for the 13 weeks ending July 3.

Speaker #5: We have worked through these parts shortages as we drive for another significant growth quarter in Q3. Gross margin increased to 14.1%, up 130 basis points sequentially and 60 basis points above the midpoint of guidance, driven by continued progress executing our machining strategy and improved product mix.

Greg Swyt: Gross margin increased to 14.1%, up 130 basis points sequentially and 60 basis points above the midpoint of guidance, driven by continued progress executing our machining strategy and improved product mix. Stronger gross margin drove the majority of upside in profitability, with Q2 operating expenses coming in at $25.3 million. Operating margin improved to over 5.5%, demonstrating significant operating leverage as volumes ramp. Interest and tax expenses were modestly favorable to our forecasts, and the resulting EPS for the quarter was $0.34, based on an average of 36.3 million diluted shares outstanding during the quarter. Positive cash flow generation from the P&L increased significantly in the quarter, with EBITDA increasing more than 50% sequentially to over $21 million. As we prepare for continued growth ahead, we are making incremental investments in inventory, and cash from operations was therefore a use of $15.9 million.

Speaker #5: Stronger gross margin drove the majority of upside in profitability, with Q2 operating expenses coming in at $25.3 million. Operating margin improved to over 5.5%, demonstrating significant operating leverage as volumes ramped.

Speaker #5: Interest and tax expenses were modestly favorable to our forecast, and the resulting EPS for the quarter was $0.34, based on an average of 36.3 million diluted shares outstanding during the quarter.

Speaker #5: Positive cash flow generation from the P&L increased significantly in the quarter, with EBITDA increasing more than 50% sequentially, to over $21 million. As we prepare for continued growth ahead, we are making incremental investments in inventory, and cash from operations was therefore a use of $15.9 million.

Speaker #5: Capital expenditures totaled $7.8 million for the quarter. Given that the stronger outlook for 2026 is expected to continue into 2027, we are accelerating investments in our factory clean rooms and machining capacity.

Greg Swyt: Capital expenditures totaled $7.8 million for the quarter. Given that the stronger outlook for 2026 is expected to continue into 2027, we are accelerating investments in our factory clean rooms and machining capacity. As a result, we expect our CapEx level to trend higher in H2 while remaining within our target range of approximately 3% of revenue. Which brings us to the balance sheet. Cash and equivalents totaled $256 million at the end of the quarter, an increase of $167 million from Q1. During Q2, we completed the entirety of our $200 million ATM equity offering, issuing a total of 2,480,000 shares at an average price of $80.70 per share and generating net proceeds of approximately $195 million. The transaction significantly increased our available liquidity, providing additional flexibility to support growth initiatives, working capital needs, and strategic opportunities.

Speaker #5: As a result, we expect our CapEx level to trend higher in the second half, while remaining within our target range of approximately 3% of revenue.

Speaker #5: Which brings us to the balance sheet. Cash and equivalents totaled $256 million at the end of the quarter, an increase of $167 million from Q1.

Speaker #5: During Q2, we completed the entirety of our $200 million ATM equity offering, issuing a total of 2,480,000 shares at an average price of $80.70 per share, and generating net proceeds of approximately $195 million.

Speaker #5: The transaction significantly increased our available liquidity, providing additional flexibility to support growth initiatives, working capital needs, and strategic opportunities. Both DSOs and inventory turns remained similar to Q1, at 32 days and 3.7 times, respectively.

Greg Swyt: Both DSOs and inventory turns remained similar to Q1 at 32 days and 3.7 times, respectively. Total debt at quarter-end was $120.6 million, and our net debt coverage ratio stands at 1.1. Now, turning to guidance. As Phil mentioned, we are now anticipating a steeper revenue ramp for Q3 and H2 2026 compared to our expectations a year ago. We anticipate Q3 revenues in the range of $315 to 345 million, which at the midpoint represents sequential growth of 12% and year-over-year increase in revenue volumes of 38%. Our gross margin guidance for Q3 is a range of 14.5% to 15.5%, as we continue to drive gross margin improvements of 100 basis points per quarter through the remainder of 2026. Our guidance for total operating expenses this year has remained relatively constant year-to-date, even with the steeper ramp in demand.

Speaker #5: Total debt at quarter end was $120.6 million, and our net debt coverage ratio stands at 1.1. Now, turning to guidance— as Phil mentioned, we are now anticipating a steeper revenue ramp for Q3 and the second half of 2026, compared to our expectations a year ago.

Speaker #5: We anticipate Q3 revenues in the range of $315 million to $345 million, which at the midpoint represents sequential growth of 12%, and a year-over-year increase in revenue volumes of 38%.

Speaker #5: Our gross margin guidance for Q3 is a range of 14.5% to 15.5%, as we continue to drive gross margin improvements of 100 basis points per quarter through the remainder of 2026.

Speaker #5: Our guidance for total operating expenses this year has remained relatively constant year-to-date, even with the steeper ramp in demand. We continue to drive disciplined cost management across the organization in support of higher revenue volumes, and we currently expect total operating expenses in 2026 will be up about 6% from 2025, with nearly all of the increase in the R&D line.

Greg Swyt: We continue to drive disciplined cost management across the organization in support of higher revenue volumes. I currently expect total operating expenses in 2026 will be up about 6% from 2025, with nearly all of the increase in the R&D line. This expectation reflects a relatively consistent run rate of $25.5 million of OpEx for both Q3 and Q4. Finally, our EPS range of $0.40 to $0.50 for Q3 reflects our expectation for total interest and other expenses of $1.5 million and assumed effective tax rates in the range of 20% to 25% and 38.5 million diluted shares outstanding. In summary, our Q2 results demonstrate clear progress against the financial priorities we laid out earlier in the year. Stronger profitability, continued execution of our internal product strategy, disciplined cost management, and improved operating leverage as volumes accelerate.

Speaker #5: This expectation reflects a relatively consistent run rate of $25.5 million of OpEx for both Q3 and Q4. Finally, our EPS range of $0.40 to $0.50 for the third quarter reflects our expectation for total interest and other expenses of $1.5 million, an assumed effective tax rate in the range of 20% to 25%, and 38.5 million diluted shares outstanding.

Speaker #5: In summary, our second quarter results demonstrate clear progress against the financial priorities we laid out earlier in the year: stronger profitability, continued execution of our internal product strategy, disciplined cost management, and improved operating leverage as volumes accelerate.

Speaker #5: With demand strengthening, margins expanding, and our balance sheet providing greater flexibility, we are entering the second half with momentum and a stronger earnings outlook than we have delivered in any period since 2022.

Greg Swyt: With demand strengthening, margins expanding, and our balance sheet providing greater flexibility, we are entering the H2 with momentum and a stronger earnings outlook than we have delivered in any period since 2022. We believe the combination of accelerating demand, improving margins, disciplined investment, and enhanced liquidity positions us to support our customers through the ramp while continuing to convert higher revenue into stronger performance. Operator, we are now ready for questions. Please open the line.

Speaker #5: We believe the combination of accelerating demand, improving margins, disciplined investment, and enhanced liquidity positions us to support our customers through the ramp, while continuing to convert higher revenue into stronger performance.

Speaker #5: Operator, we are now ready for questions. Please open the line.

Speaker #1: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Please limit yourself to one question and one follow-up. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question will come from Krish Sankar with TD Cowen.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Please limit yourself to one question and one follow-up. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question will come from Krish Sankar with TD Cowen.

Speaker #1: A confirmation tone will indicate your line is in the question queue. Please limit yourself to one question and one follow-up. You may press star 2 if you would like to remove your question from the queue.

Speaker #1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Krish Sankar with TD Cowen.

Speaker #3: Hi, yeah, thanks for taking my questions. This is Steven calling on behalf of Krish. I guess, Phil, our first question for you is on some of the commentary around your growth.

[Analyst] (TD Cowen): Hi. Thanks for taking my questions. This is Steven calling on behalf of Krish. I guess, Phil, first question for you on some of the commentary around full year growth. You mentioned 30% plus potential for this year versus last year. I guess when we look at some of the WFE numbers that some of your customers have been talking about and also sort of the full year growth rates that one of your key customers is talking about, can you help us bridge some of the gap between customer commentary versus what you're saying today? Again, totally get that the sentiment and demand signals are very strong, but just from a quantitative standpoint, anything can help in terms of bridging the numbers, whether it's supply or just ramping up the timeframe for capacity could be helpful.

Speaker #3: You mentioned 30% plus potential for this year, versus last year. I guess when we kind of look at some of the WFE numbers that some of your customers have been talking about, and also sort of the for your growth rates that one of your key customers is talking about, can you kind of help us bridge some of the gap between customer commentary versus what you're saying today?

Speaker #3: And again, I totally get that the sentiment and demand signals are very strong, but just from a quantity standpoint, anything you can help on in terms of bridging the numbers—whether it's supply or just ramping up timeframe for capacity—could be helpful.

Speaker #5: Yeah, great question. What I would say is, what we're trending to today is kind of a mix of all of our customers. If you look at how—

Greg Swyt: Yeah. Great question. What I would say is, what we're trending to today is kind of a mix of all of our customers. If you look at how every one of our customers are guiding, I would say that we're a good blend of what they're saying based on what our percentage of shipments are to each of those customers. In general, I'd say we're trending towards the higher end of WFE. When we said 30% plus, that's kind of what we mean by that. That's where we're seeing the WFE kind of coalesce at this point in the cycle. What I would say is that we will continue to monitor that, and I would say that we're continuing to grow with our customers in a good blend of what they're seeing.

Speaker #5: Every one of our customers are guiding. I would say that we're a good blend of what they're saying, based on what our percentage of shipments are to each of those customers.

Speaker #5: So, in general, I'd say we're trending towards the higher end of WFE. So, when we said 30% plus, that's kind of what we mean by that.

Speaker #5: That's where we're seeing the WFE kind of coalesce at this point in the cycle. What I would say is that we will continue to monitor that, and I would say that we're continuing to grow with our customers, in a good blend of what they're saying.

Speaker #3: Okay, understood. And for my follow-up, I was wondering, for your lithography customer, I think in prior quarters, you kind of mentioned that inventory levels might be a factor in how much you can grow at that customer this year.

[Analyst] (TD Cowen): Okay, understood. For my follow-up, I was wondering for your lithography customer, I think prior quarters you mentioned that inventory levels might be a factor in how much you can grow that customer this year. Just kind of curious, how has the inventory situation changed, if at all, at the customer over the last quarter? Thanks so much.

Speaker #3: Just kind of curious, how has the inventory situation changed, if at all, at the customer over the last quarter? Thanks so much.

Speaker #5: Yeah, I'd say that—oh, I'm sorry. Yeah, I'd say the inventory position has been very consistent. We believe we're burning through the inventory this quarter.

Phil Barros: Yeah. I'd say the inventory position's been very consistent. We believe we're burning through the inventory this quarter. I would say we're through that as we exit this quarter in Q3. Q4, we start to see a return. In Q1, in particular, we have really good visibility with that customer. They give us a long-range forecast that gives us good visibility for what they need. I would say we see significant growth in 2027 with that particular customer.

Speaker #5: So I would say we're through that as we exit this quarter in Q3. In Q4, we start to see a return. In Q1 in particular, we have really good visibility with that customer.

Speaker #5: They give us a long-range forecast that gives us good visibility for what they need. I would say we see significant growth in 2027 with that particular customer.

Speaker #3: Perfect. Thank you so much.

[Analyst] (TD Cowen): Perfect. Thank you so much.

Speaker #5: Sure.

Phil Barros: Sure.

Speaker #1: And our next question will come from Edward Yang with Oppenheimer.

Operator: Our next question will come from Edward Yang with Oppenheimer.

Speaker #6: Hey, Phil, thanks for the time. Could you provide a little bit more detail on that piece of the revenue in the second quarter that was pushed out due to the parts shortage?

Edward Yang: Hey, Phil. Thanks for the time. Could you provide a little bit more detail on that piece of the revenue in the Q2 that was pushed out from the parts shortage, was that related to flow controllers by any chance? As a result of that, did you miss any delivery timetables with customers? Just curious around some color around that.

Speaker #6: And was that related to flow controllers by any chance? And as a result of that, did you miss any delivery timetables with customers? Just curious for some color around that.

Speaker #5: Yeah, all good questions. First of all, your nose is very good, because I would say that if I talk about the suppliers that keep me up at night, I would say flow control is definitely one of those.

Phil Barros: Yeah, all good questions. First of all, your nose is very good because I would say that if I talk about the suppliers that keep me up at night, I would say flow control is definitely one of those. The way I would think about it, in terms of how we're executing for our customers, I think we're executing very well for our customers. I think we're keeping very good pace with them. I think we are not a drag on their output, I would say we're pacing very well. Everything that we're outputting is going through their system and shipping. What I would say is, that particular supplier, what happened at the end of the quarter, I would say is more of an isolated incident. In particular, we chase parts every quarter. This is not a surprise.

Speaker #5: The way I would think about it, in terms of how we're executing for our customers—I think we're executing very well for our customers.

Speaker #5: I think we're keeping a very good pace with them. I think we are not a drag on their output, and so I would say we're pacing very well.

Speaker #5: So everything that we're outputting is going to their system and shipping. What I would say is, that particular supplier—what happened at the end of the quarter—I would say is more of an isolated incident.

Speaker #5: In particular, we chase parts every quarter. This is not a surprise. This is not the kind of thing that we don't do as a daily part of our business.

Phil Barros: This is not a kind of thing that we don't do as a daily part of our business. Quite frankly, this typically happens kind of earlier in the quarter, if you will. Unfortunately, it happened at the very end of the quarter, which kind of crossed quarter boundaries. I would say, if you looked at when that revenue shipped, it shipped literally days after the quarter, but just not in time for us to recognize revenue.

Speaker #5: And quite frankly, this typically happens earlier in the quarter, if you will. Unfortunately, it happened at the very end of the quarter, which kind of crossed quarter boundaries.

Speaker #5: I would say, if you looked at when that revenue shipped, it shipped literally days after the quarter, but just not in time for us to recognize revenue.

Speaker #6: Got it. And for my follow-up, maybe a question for Greg. One of the impacts from the tremendous revenue growth you're seeing is that you're building up inventory, and your operating cash flow has turned negative.

Edward Yang: Got it. For my follow-up, maybe a question for Greg. One of the impacts from the tremendous revenue growth you're seeing is you're building up inventory and your operating cash flow has turned negative, and you're burning cash on the operating cash flow side. When do you think that will start to revert back to positives?

Speaker #6: And you're burning cash on the operating cash flow side. When do you think that will start to revert back to positive?

Speaker #4: Hi, Ed. So, near term, we're going to—as we said—we still have some investments to make in our inventory to make sure that we're meeting the customer demands.

Greg Swyt: Hi, Ed. Near term, as we said, we still have some investments to make in our inventory to make sure that we're meeting the customer demands. We do expect to see that we'll start to see the benefit of the inventory turns start to improve into H1 2027, as we work through this demand cycle.

Speaker #4: We do expect to see that we'll start to see the benefit of the inventory turns begin to improve into the first half of '27.

Speaker #4: As we work through this demand cycle.

Speaker #6: Thank you.

Edward Yang: Thank you.

Speaker #1: And next, we move to Christian Schwab with Craig Hallum.

Operator: Moving next to Christian Schwab with Craig-Hallum.

Speaker #2: And Greg, thanks for taking my question. I just want to get some clarity on something I thought I heard in the prepared comments. I think you guys outlined last quarter that you had yearly manufacturing capacity of up to $2 billion in revenue, which is a little bit higher than what was reflected two or three quarters before that.

Christian Schwab: Great. Thanks for taking my question. I just have a clarity about something I thought I heard in the prepared comments. I think you guys outlined last quarter that you had yearly manufacturing capacity of up to $2 billion of revenue, which is a little bit higher than what was reflected two or three quarters before that. Did I hear you correctly that you think you have the capability to produce up to $3 billion in annual revenue?

Speaker #2: Did I hear you correctly that you think you have the capability to produce up to $3 billion in annual revenue?

Speaker #5: Christian, great question. What I would say is, we've gone through our long-range planning over the past quarter, and as you can imagine, in this type of ramp environment, you spend a lot of time planning and making sure you're ready for the coming demand.

Phil Barros: Christian, great question. What I would say is we've gone through our long-range planning over the past quarter, and as you can imagine, in this type of ramp environment, you spend a lot of time planning and making sure you're ready for the coming demand. As part of that exercise, we went through and said, "Okay, what would it take to get to $3 billion? What would it take to get to above and beyond that?" What I would say is $2 billion in our current footprint, not a problem at all. To get to $3 billion, we have the brick and mortar, which is obviously the longest lead time item. I would say we would have to add a little bit of clean room space.

Speaker #5: As part of that exercise, we went through and said, "Okay, what would it take to get to $3 billion? What would it take to get to above and beyond that?" What I would say is, $2 billion in our current footprint is not a problem at all.

Speaker #5: To get to $3 billion, we have the brick and mortar, which is obviously the longest lead-time item. I would say we have a little bit of clean room space—not a whole lot, but a little bit of clean room space—which, actually, we're executing in the second half of this year. That will put us in a good position.

Phil Barros: Not a whole lot, but a little bit of clean room space, which actually we're executing in the H2 of this year, which will put us in a good position. Then I would say above and beyond that, what we will do is invest in machining capacity, because as we see the ramp continue, we're going to see a need for additional machining capacity to meet our internal output needs as revenues continue to grow. For the most part, what I would say is within our four walls, we can do $3 billion in revenue. It just takes a little bit of investment for us to get between now and then.

Speaker #5: And then I would say, above and beyond that, what we will do is invest in machining capacity, because as we see the ramp continue, we're going to see a need for additional machining capacity to meet our internal component needs.

Speaker #5: As revenues continue to grow, so for the most part, what I would say is, within our four walls, we can do $3 billion in revenue.

Speaker #5: It just takes a little bit of investment for us to get between now and then.

Speaker #2: And that investment, it sounds like you're doing it in the second half of this year, typically. That may take six to nine months to get the clean room space up and going.

Christian Schwab: That investment, it sounds like you're doing it in the H2 of this year. Typically, that may take six, nine months to get the clean room space up and going. Is it safe to say that at some point in calendar 2027, that's the direction we're marching to? Did I hear that correctly?

Speaker #2: So is it safe to say that, at some point in calendar 2027, that's the direction we're marching in? Did I hear that correctly?

Speaker #5: Yeah, I'm not going to guide to $3 billion right now. If we get closer to that, maybe I will. But what I'll say is, we are gearing ourselves up for a significant 2027.

Phil Barros: Yeah. I'm not going to guide 3 billion right now. If we get closer to that, maybe I will. What I'll say is we are gearing ourselves up for a significant 2027.

Speaker #6: Fantastic.

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

Speaker #2: Great. No other questions. Thank you.

Speaker #5: Thank you.

Phil Barros: Thank you.

Speaker #1: And our next question will come from Brian Chin with Stifel.

Operator: Our next question will come from Brian Chin with Stifel.

Brian Chin: Hi there. Good afternoon. Thanks for letting us ask a few questions. Maybe first, back on the supply, maybe can you unpack just a little bit more about how you're executing on that Malaysia manufacturing ramp? Also, maybe related to this or maybe it's beyond this, but are you getting mandates from some of your direct OEM customers at this stage to accelerate maybe insourcing and design of certain passive, maybe even active components based on any part shortages that are existing or maybe at risk of emerging across the supply chain?

Speaker #3: Hi there, good afternoon. Thanks for letting us ask a few questions. Maybe first, back on the supply—could you unpack a little bit more about how you're executing on that Malaysia manufacturing ramp?

Speaker #3: And also, maybe related to this—or maybe it's kind of beyond this—but are you getting mandates from some of your direct OEM customers at this stage to accelerate, maybe, insourcing and design of certain passive—maybe even active—components, based on any part shortages that are existing or maybe at risk of emerging across the supply chain?

Speaker #5: Yeah, Brian, I think those are great questions. What I would say is a couple of things. First and foremost, our Malaysia ramp is going exceptionally well.

Phil Barros: Yeah, Brian, I think those are great questions. What I would say is a couple of things. First and foremost, our Malaysia ramp is going exceptionally well. What I would say for that is there's a couple of areas where I was concerned of the ramp-up of Malaysia. That would be in machining and our welding, both of which have been qualified by both of our major customers, so that's a big win in the quarter. Great progress there. What I would say is, we talked about it before, with Malaysia being a headwind until we fully absorb that factory. That's one of the major reasons we see the H2 of the year, we continue to march to that 1 point per quarter gross margin increase. A portion of that is Malaysia ramp-up, as well as internal supply.

Speaker #5: What I would say for that is, there's a couple of areas where I was concerned with the ramp-up in Malaysia. That would be in machining and our welding.

Speaker #5: Both of which have been qualified by both of our major customers, so that's a big win in the quarter. So, great progress there. What I would say is, we've talked about it before, with Malaysia being a headwind until we fully absorb that factory.

Speaker #5: That's one of the major reasons we see in the second half of the year—we continue to march to that one point per quarter gross margin increase.

Speaker #5: That's—a portion of that is Malaysia ramp-up, as well as internal supply. In terms of our customers and what they're asking from us from an internal supply, I would say the answer is yes.

Phil Barros: In terms of our customers and what they're asking from us from an internal supply, I would say the answer is yes. Our customers really want us to bring on additional supply because that's going to give them the amount of flexibility they need, and that's exactly what our customers are asking us for. I would say that, in general, the qualifications with our customers in terms of products are going faster than normal, and that's an indication of there's risks in the supply chain that they need to de-risk, and we're offering relief valves for that with our internal supply.

Speaker #5: Our customers really want us to bring on additional supply because that's going to give them the amount of flexibility they need. And that's exactly what our customers are asking us for.

Speaker #5: I would say that, in general, the qualifications with our customers in terms of products are going faster than normal, and that's an indication that there are risks in the supply chain that they need to de-risk, and we're offering kind of relief valves for that with our internal supply.

Speaker #3: Great, great, appreciate that color. And maybe on the demand side, again—it sounds like you're targeting at least $350 million in revenue in the fourth quarter, and that 25% at least second-half over first-half growth.

Brian Chin: Great. Appreciate that color. Maybe on the demand side, again, sounds like you're targeting at least $350 million revenue in the Q4 and that 25% at least H2 of our H1 growth. Given your commentary on visibility stretching out, how would you calibrate or describe growth momentum in H1 next year relative to H2?

Speaker #3: And given your commentary on visibility stretching out, how would you calibrate or describe growth momentum in the first half of next year relative to the second half?

Speaker #5: Yeah, we've got a couple of things that are interesting in the first half of 2027 that are going to be additive, that we did not see, or we're not going to see, in the second half of this year.

Phil Barros: Yeah. We've got a couple of things that are interesting in H1 2027 that are going to be additive, that we did not see or we're not going to see in H2 this year. In particular litho, for example. We see that picking up significantly in H1. I think it's a little early to call H1 next year. I normally wouldn't want to guide out 6 months ahead of time, but what I can tell you is our customers are placing POs out 6 months ahead, which is abnormal for our customers, as you know. I feel very good about the trajectory of 2027 at this point. I think our customers are given that same level of confidence, so I just continue to echo that as well.

Speaker #5: In particular, Litho, for example, we see that picking up significantly in the first half. I think it's a little early to call the first half of next year.

Speaker #5: I normally wouldn't want to guide out six months ahead of time, but what I can tell you is our customers are placing POs out six months ahead, which is abnormal for our customers, as you know.

Speaker #5: So I feel very good about the trajectory of 2027 at this point, and I think our customers are giving us that same level of confidence.

Speaker #5: So, I just want to continue to echo that as well.

Speaker #3: Great. Appreciate the color.

Brian Chin: Great. Appreciate the color.

Speaker #1: And moving on to Linda Umwali with D.A. Davidson.

Operator: Moving on to Linda Umwali with D.A. Davidson.

Speaker #4: Hi, guys. Thank you for letting us ask questions. My first question was to double-click on demand capacity. Thank you, Said, that demand isn't constrained anymore in manufacturing.

Linda Umwali: Hi, guys. Thank you for letting us ask questions. My first question was to double-click on demand capacity. I think you said that demand isn't a constraint anymore and manufacturing is. As you get Malaysia up and running and bring more production in-house, I want to understand how much more room do you have to support customers if demand stays this strong. I don't know if you mentioned it before, I missed it. Yeah, color on that would be great.

Speaker #4: As we get Malaysia up and running and bring more production in-house, I want to understand: how much more room do you have to support customers if demand stays this strong?

Speaker #4: I don't know if you mentioned it, but I missed it. Yeah, good color, and that would be great.

Speaker #5: Yeah. I just want to offer a point of clarification. Our manufacturing capacity is not a constraint today. I want to be ultra clear when I say that—our manufacturing capacity is at the point, or above, where our customers need it to be today.

Phil Barros: Yeah. One point of clarification. Our manufacturing capacity is not a constraint today. I want to be ultra clear when I say that our manufacturing capacity is at the point or above where our customers need it to be today, and I would say that I feel comfortable with that. Now, with that said, what we talked about in the prepared remarks was that we have the capacity today to do $2 billion within our installed capacity. As we enter into next year, we're looking at growing capacity up to about $3 billion. That increased capacity, once again, is preparing for growth, and growth beyond what we need today. What I would say is that $3 billion kind of run rate is more than double what we're going to need essentially this year. We have the ability to more than double our size from this year.

Speaker #5: And I would say that, that is—I feel comfortable with that. Now, with that said, what we talked about in the prepared remarks was that we are growing. We have the capacity today to do $2 billion within our installed capacity.

Speaker #5: And as we enter into next year, we're looking at growing capacity up to about $3 billion. That increased capacity, once again, is preparing for growth—and growth beyond what we need today.

Speaker #5: And what I would say is that that $3 billion kind of run rate is more than what we have, or more than double what we're going to need, essentially, in this year.

Speaker #5: So, we have the ability to more than double our size this year—from this year.

Speaker #4: Got it. Thank you for that. And now I want to switch gears to the non-semi business. Could you talk about what's driving the non-semi business today?

Linda Umwali: Got it. Thank you for that. Now I want to switch gears to the non-semi business. Could you talk about what's driving the non-semi business today? Is the growth still mostly commercial space and defense? How should we think about that business in H2 and over the next year?

Speaker #4: Is the growth still mostly commercial space and defense? And how should we think about that business in the second half and over the next year?

Speaker #5: Yeah, I would say actually the commercial space business this quarter grew significantly, and it's continuing to grow into the second half of this year.

Phil Barros: Yeah, I would say actually, the commercial space business this quarter grew significantly, and it's continuing to grow into H2 of this year. We did receive an official qualification for a particular part family that's going to be growing in H2 of the year, so we feel really, really good about that trajectory. We are also, unfortunately, seeing a little bit of growth in our defense business because of certain activities that are driving that. With that said, I would say that we're seeing growth in both the commercial space business as well as the aerospace and defense. I would say commercial space business is pacing by far, or is growing or driving it by far.

Speaker #5: We did receive an official qualification for a particular part family that's going to be growing in the second half of the year, so we feel really, really good about that trajectory.

Speaker #5: We are also, unfortunately, seeing a little bit of growth in our defense business because of certain activities that are driving that. But with that said, I would say that we're seeing growth in both the commercial space business as well as aerospace and defense.

Speaker #5: But I would say the commercial space business is pacing by far. Or is that growing or driving it by far?

Speaker #4: Got it. Thank you for your time.

Linda Umwali: Got it. Thank you for your time.

Speaker #5: Absolutely. Thank you.

Phil Barros: Absolutely. Thank you.

Speaker #1: And our next question will come from Dennis Piacianin with Needham & Company.

Operator: Our next question will come from Denis Pyatchanin with Needham & Company.

Speaker #2: Great, thank you for the opportunity. I think I have only one question here today, and maybe you could provide an update on the internal content roadmap.

Denis Pyatchanin: Great. Thank you for the opportunity. I think I have only one question here today, maybe you could provide an update on the internal content roadmap. Maybe provide an update on where you are today and where you expect to be over the next 12 months, and if that's changed from the last time we spoke, along with perhaps what kind of gross margin improvements we could see as a result. Thank you.

Speaker #2: Maybe provide an update on where you are today, and where you expect to be over the next 12 months. And if that's changed from the last time we spoke, along with perhaps what kind of gross margin improvements we could see as a result.

Speaker #2: Thank you.

Speaker #5: Yeah, that's a fantastic question again. What I would say there is we exited Q2 at around just below our 25% run rate that we exited last year with.

Phil Barros: Yeah, that's a fantastic question again. What I would say there is, we exited Q2 at around just below our 25% run rate that we exited last year with. As we bring capacity down from Minnesota and into Mexico with our realignment, obviously we purposely took down some capacity. We've brought that back up. That's now up and running. We're about 25% as we exited the quarter. As we bring up Malaysia and additional capacity within Mexico, we expect to be at a run rate around 30% as we exit this quarter, and around 35% as we exit next quarter. That's very well in line with what we expected. I would tell you that that's a large driver for our gross margin increases over the next couple of quarters.

Speaker #5: So, as we bring capacity down from Minnesota and into Mexico with our realignment, obviously, we purposely took down some capacity, and we brought that back up.

Speaker #5: That's now up and running. So, we were at about 25% as we exited the quarter. As we bring up Malaysia and add additional capacity within Mexico, we expect to be at a run rate of around 30% as we exit this quarter.

Speaker #5: And around 35% as we exit next quarter. That's very well in line with what we expected. I would tell you that that's a large driver for our gross margin increases over the next couple of quarters.

Speaker #5: And the exciting part to me, more than just the percentage of product that we're getting in there, is the product margin we're seeing with those.

Phil Barros: The exciting part to me, more than just the percentage of product that we're getting in there is the product margin we're seeing with those. As we've moved these parts, we're seeing significant increases in product margin. While that was expected, I'm really happy with what we're seeing in terms of realizing those gains, if you will.

Speaker #5: As we've moved these parts, we're seeing significant increases in product margin. While that was expected, I'm really happy with what we're seeing in terms of kind of realizing those gains, if you will.

Speaker #2: Yeah, perfect. That's all that I needed. Thank you very much.

Denis Pyatchanin: Yeah, perfect. That's all that I needed. Thank you very much.

Speaker #5: Thank you.

Phil Barros: Thank you.

Speaker #1: And we'll go next to Craig Ellis with B. Riley Securities.

Operator: We'll go next to Craig Ellis with B. Riley Securities.

Speaker #6: Yeah, thanks for taking the questions. I'll stick with the gross margin theme. Phil, at the beginning of the year, you laid out four factors that could lift gross margins to 15%, and we're essentially at that level.

Craig Ellis: Yeah, thanks for taking the questions. I'll stick with the gross margin theme. Phil, at the beginning of the year, you laid out four factors that could lift gross margins to 15% and were essentially at that level, you outlined four that could take the business to 20%. Can you just talk about your confidence in getting from 15% to 20% gross margins, the visibility you have, and what specifically you're focused on executing for this next 500 basis points in expansion?

Speaker #6: And you outlined four that could take the business to 20. Can you just talk about your confidence in getting from 15% to 20% gross margins?

Speaker #6: The visibility you have, and what specifically you're focused on executing for this next 500 basis points in expansion?

Speaker #5: Yeah, I would say my confidence today is higher than at any given point. Obviously, when you're planning out these things, everything's a plan on paper.

Phil Barros: Yeah, I would say my confidence today is, I would say, higher than at any given point. Obviously, when you're planning out these things, everything's a plan on paper. To see it actually come out in execution is when you start to realize that it's going to happen. That's, to me, where I get comfort at this point, because we're starting to see that in the actual results. Right. As you saw from the last couple of quarters, we outperformed compared to where we thought we were going to be from 100 basis points per quarter execution. We outperformed that. That, to me, is just a testament to everything that's going on and all the changes that we're making, and they're turning into meaningful results. Now, as you pointed out, we're at the 15% now. What have you done for me lately?

Speaker #5: But to see it actually come out in execution is when you start to realize that it's going to happen. And so that's, to me, where I get comfort at this point, because we're starting to see that in the actual results, right?

Speaker #5: As you saw from the last couple of quarters, we outperformed compared to where we thought we were going to be, by 100 basis points per quarter.

Speaker #5: Execution—we outperformed that. So, to me, that's just a testament to everything that's going on and all the changes that we're making, and they're turning into meaningful results.

Speaker #5: Now, as you pointed out, we're at 15. Now, what have you done for me lately? How are you going to get to 20?

Phil Barros: How are you going to get to 20%? Getting to 20%, it's going to be a lift. We talked a bit about 100 basis points over the next 2 quarters. A lot of that's going to come from parts that we already have qualified that we need to ramp up. A lot of that's going to come from Malaysia. Once again, that's going to come from the gross margin improvements that we have in those particular products. Now, one thing I do want to highlight that I maybe haven't said publicly before, but we have put out a roadmap that had flow control as a requirement to get to 20%. I would say that I can see a path today without that.

Speaker #5: So getting to 20, it's going to be a lift. We talked a bit about 100 basis points over the next two quarters. A lot of that's going to come from parts that we already have qualified, that we need to ramp up.

Speaker #5: A lot of that's going to come from Malaysia. And once again, that's going to come from the margin—the gross margin improvements that we have.

Speaker #5: In those particular products—now, one thing I do want to highlight that I maybe haven't said publicly before—but we have put out a roadmap that had flow control as a requirement to get to 20.

Speaker #5: I would say that I can see a path today. Without that, there's more than one path to get us to the $20 million. And I think that as revenue continues to grow and our execution of our product strategy continues, I would say that that's opening up additional paths for us to be successful.

Phil Barros: There's more than one path to get us to the 20%. I think that as revenue continues to grow and our execution of our product strategy continues to continue, I would say that that's opening up additional paths for us to be successful.

Craig Ellis: That's really helpful. Thanks for that. There hasn't been a lot of conversation this call about just the relative strength of different products and how you feel about fulfillment at a product level. Can you talk a little bit more about gas panels, chemical delivery, weldments, et cetera, and where you think the business is in terms of meeting customer demands and your ability to hit higher calls from customers as you go through this year and into next year? Thanks.

Speaker #6: That's really helpful. Thanks for that. And then, there hasn't been a lot of discussion about the relative strength of different products and how you feel about fulfillment at a product level.

Speaker #6: So, can you talk a little bit more about gas panels, chemical delivery, weldments, etc., and where you think the business is in terms of meeting customer demands and your ability to hit higher calls from customers as you go through this year and into next year?

Speaker #6: Thanks.

Speaker #5: Yeah, I would say that we're performing, at least in my view, very well for our customers. Our customers, as you know, are a demanding group.

Phil Barros: I would say that we're performing, at least in my view, very well for our customers. Our customers, as you know, are a demanding group. With that said, I would say that we are executing to what they need, and I think that's on all aspects, whether it be chem delivery, gas delivery, or our weldment business. We are seeing a significant growth in our weldment business, which is a part of our business that has been kind of brought down for a period of time. We're starting to see that pick back up and recover. That feels really good. We have increased our capacity significantly with weldments, and we talked about Malaysia a bit. One of the areas where we've got qualifications first was in our weldment business.

Speaker #5: With that said, I would say that we are executing to what they need. And I think that's on all aspects, whether it be chem delivery, gas delivery, or the welding business.

Speaker #5: We are seeing significant growth in our welding business, which is a part of our business that has been kind of brought down for a period of time.

Speaker #5: So we're starting to see that pick back up and recover, so that feels really good. We have increased our capacity significantly with weldments, and we talked about Malaysia a bit.

Speaker #5: One of the areas where we got a qualification first was in our weldment business. So that's one area where we're going to have additional capacity come online.

Phil Barros: That's one area where we're going to have additional capacity come online as we get into the H2, which I think can help us with the product mix as well.

Speaker #5: As we get into the second half, which I think can help us with the product mix as well.

Speaker #6: Thank you.

Craig Ellis: Thank you.

Speaker #1: And this now concludes our question and answer session. I would like to turn the floor back over to Phil Barros for closing comments.

Operator: This now concludes our question and answer session. I would like to turn the floor back over to Phil Barros for closing comments.

Speaker #5: Yeah. Thank you, operator. And thank you, everyone, for joining our call today. I want to once again thank our employees, who are taking on this ramp and strategic transformation all at the same time.

Phil Barros: Yeah. Thank you, operator, and thank you everyone for joining our call today. I want to once again thank our employees who are taking on this ramp of strategic transformation all at the same time and executing at a very high level. I have complete faith in the team's ability to execute and could not be more proud to be leading this team along this journey. You can feel the momentum and the energy at Ichor. I look forward to our next update on our Q3 call in November. In the meantime, please reach out to Claire to arrange any follow-up requests for meetings. Operator, you can conclude the call.

Speaker #5: And executing at a very high level. I have complete faith in the team's ability to execute, and I could not be more proud to be leading this team along this journey.

Speaker #5: You can feel the momentum and the energy at Ichor. I look forward to our next update at our Q3 call in November. In the meantime, please reach out to Claire to arrange any follow-up requests for meetings.

Speaker #5: Operator, you may conclude the call.

Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.

Q2 2026 Ichor Holdings Ltd Earnings Call

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