Ichor Holdings, Ltd. (NASDAQ:ICHR) Q1 2024 Earnings Call Transcript

Ichor Holdings, Ltd. (NASDAQ:ICHR) Q1 2024 Earnings Call Transcript May 7, 2024

Ichor Holdings, Ltd. misses on earnings expectations. Reported EPS is $-0.29952 EPS, expectations were $0.01. ICHR isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, ladies and gentlemen, and welcome to Ichor’s First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I’d now like to introduce your host for today’s conference, Claire McAdams, Investor Relations for Ichor. Please go ahead.

Claire McAdams: Thank you, operator. Good afternoon and thank you for joining today’s first quarter 2024 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 2023 and those described in subsequent filings with the SEC. You should consider all forward-looking statements in light of those and other risks and uncertainties.

Additionally, we will be providing certain non-GAAP financial measures during this conference call. Our earnings press release and the financial supplement posted to our IR website each provide a reconciliation of these non-GAAP financial measures to their most comparable GAAP financial measures. On the call with me today are Jeff Andreson, our CEO; and Greg Swyt, our CFO. Jeff 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 Jeff Andreson. Jeff?

Jeff Andreson: Thank you, Claire, and welcome to our Q1 earnings call. As expected, our Q1 revenues were similar to Q4 levels at $201 million, reflecting the relatively stable demand environment within the wafer fab equipment market. Q1 gross margin of 12.2% increased sequentially from Q4, but not quite as much as we had forecast due to a combination of mix and cost. Revenue mix was slightly less favorable than our earlier expectations for Q1 revenues. Q1 was a particularly back-end loaded quarter with about one-third of our revenue shipping in the final 3 weeks of the quarter. The high volume of shipments at quarter end were highly weighted to gas panels compared to components, and our overall mix of higher-margin components decreased compared to Q4 versus our prior expectation for sequential growth in our components businesses.

At the same time, we witnessed a late quarter slowing in build rates for EUV gas delivery associated with order delays in leading-edge logic. We remain on track with our strategy to drive gross margin improvement through greater integration of proprietary components and continued cost reduction initiatives. In Q1, we achieved a sequential uptick in proprietary content that was aligned with our expectations, but with higher-than-expected costs as we begin to ramp these products. With continued execution of our gross margin improvement strategies, we are driving further expansion of our margin profile at the similar revenue levels expected in Q2. Our earnings for the quarter came in below guidance because of a combination of gross profit impacts as well as a change in the tax provision as Greg will cover shortly.

We completed an equity offering in early March that yielded net proceeds of $137 million. We paid down the entire balance of our revolver, vastly improving our leverage ratio and cutting expected interest expenses by over half. With this transaction, we believe we have significantly improved the company’s capital structure as well as our earnings leverage and overall flexibility to execute against future strategic objectives. Now I’ll turn to our outlook for the year. Expectations for industry demand in 2024 have remained relatively stable year-to-date. Within an overall WFE landscape that is expected to be similar to modestly up from 2023, the current revenue baseline for Ichor continues to be fairly stable at the $200 million level. The midpoint of our Q2 guidance is slightly below that baseline because of some isolated softness in a couple of areas, namely in our silicon carbide gas panel business which has slowed a bit as the industry digests the capacity installed over the past few years as well as a slower-than-expected EUV system build rate through midyear, given certain order delays in leading-edge logic.

We will remain optimistic for an improvement in the second half revenue volumes as the demand profile begins to build in advance of a stronger 2025 spending environment. That being said, our visibility remains limited to approximately 3 months given the return to normalized lead times in the supply chain. And with our current visibility, we are not yet seeing a meaningful uptick in demand for new systems serving the NAND market. The recovery in this market remains in the very early stages and recent reports indicate that the improvement year-to-date is chiefly focused on technology upgrades. Given the strong etch and deposition intensity characteristic of the NAND market, we look forward to a more meaningful improvement in NAND demand, driving a strong growth year for us in 2025.

In other semiconductor end markets, the emergence of new technology drivers and process inflections, such as gate-all-around and high-bandwidth memory require an increasing use of applications that are highly dependent on the accuracy and repeatability of the fluid delivery systems. These include applications such as Selective Etch, ALD, Deep Silicon Etch, ECD and more. We have a role providing fluid delivery to all of these applications. And while the expected pace of EUV deployments has resulted in a current slowing in the build rate for 2024, as we move into 2025, we expect a significant increase in gas delivery deployment for litho as well. Outside the semiconductors, specifically for our IMG business, we are also seeing improvement in the overall demand forecast as well as incremental share gains ahead within IMG’s customers’ base in aerospace and defense, as well as certain commercial markets.

As each of these markets and applications continue to expand, we see opportunities for Ichor to increase our revenue potential and continue to add breadth and diversification to our customer base. All of these factors build a strong story for Ichor’s revenue growth as the industry recovery accelerates. But it’s our proprietary products, including our next-generation gas panel that we are most excited about, as our key initiative to drive overall gross margin expansion within our business, and this period of muted demand has enabled us to make steady progress penetrating our new products into the market. I’m pleased to report that we recorded our first revenue on some of our initial shipments of next-generation gas panels during Q1. By midyear, we will have over 20 next-generation gas panels shipped and installed in the field with most supporting our customers’ evaluation tools that have shipped to device manufacturers.

Our new gas panel contains about 80% proprietary Ichor content compared to around 10% today, which will drive significant expansion of our gross margin profile. These tool evaluations typically take about 9 months to complete. So, the earliest these will be completed and production shipments can begin is the fourth quarter for the initial shipments. We have been qualified on three applications and are now expecting to complete a fourth application qualification by midyear and have four active customer engagements. Our strategy to expand overall proprietary Ichor content extends to our components businesses as well. We are now customer qualified on fittings that are used in our weldment business, substrates used in our gas panel as well as seals and valves.

These are all critical components used in the existing gas panels that we assemble. All of these component qualifications can be deployed to our existing gas panels that we build today as well as being designed into our next-generation gas panel. These specific products are now qualified at three customers and began shipping in the second half of the first quarter. We expect our proprietary component content will continue to increase within our build-to-print gas panel business over the next several quarters. These applications have significant opportunities to drive margin accretion as we further integrate them into our gas panel business. In summary, I’ll remind everyone here today that our revenues tend to recover more sharply when industry spending rebounds.

Furthermore, our business model and financial profile tend to generate significant operating leverage as revenues grow. Given the current industry expectations for WFE remaining relatively stable at these levels through 2024 in advance of a strong 2025, we also expect our revenue run rate to continue around the $200 million level until the beginning of a revenue ramp. We look forward to ramping revenues back towards the $250 million to $300 million plus level in 2025. We expect to be able to deliver significant earnings growth as revenue volumes increase, which is why we continue to make critical investments in our business in support of future growth. With that, I’ll turn it over to Greg to recap our Q1 results and provide further details around our Q2 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, non-recurring charges and discrete tax items, and adjustments. There is a useful financial supplement available on the Investors 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. First quarter revenues were aligned with our earlier expectations at $201 million, remaining relatively steady from Q4 levels. Gross margin improved 180 basis points sequentially to 12.2%, driven by improved factory efficiencies as well as the pass-through revenue events from Q4, not repeating this quarter.

While gross margins improved meaningfully compared to the Q4 trough, we were about 100 basis points shy of forecast due to less favorable product and customer mix versus forecast as well as higher costs for our internally produced proprietary products. Q1 operating expenses came in below forecast and were up slightly from Q4 at $22.1 million due to the resetting of labor-related taxes and benefits and our operating income for Q1 was $2.4 million. Our net interest expense was $4.1 million, and our non-GAAP net income tax expense was above our forecast at $800,000 due to higher international profits and the elimination of our ability to recognize a U.S. tax loss benefit. The change had approximately a $0.03 impact on our EPS within the quarter.

The resulting net loss per share was $0.09. Now turning to the balance sheet. At the end of the quarter, our cash and equivalents totaled $102 million, a $22 million increase from Q4. We generated $4.8 million in cash flow from operations and after deducting $4.5 million of capital expenditures, our free cash flow was roughly neutral. Accounts receivable increased from year-end due to the back-end loaded revenue profile of the quarter, and our DSOs were 33 days. Inventory decreased $5 million during the quarter to end the quarter $241 million and inventory turns increased to $2.9 million. During the quarter, we completed an equity offering that raised net proceeds of $137 million. The proceeds were used to pay down $115 million of our revolver balance.

Our total debt currently has an outstanding balance of $133 million, and our net debt coverage ratio improved to 1.9x. Now let’s discuss our guidance for the second quarter of 2024. With anticipated revenues in the range of $190 million to $205 million, we expect our gross margins will improve to a range of 12.5% to 13.5%. We expect Q2 operating expenses to be approximately $22.2 million or roughly flat to Q1. We expect operating expenses to remain at similar level for the remainder of the year. Net interest expense for Q2 is expected to decline to approximately $1.8 million. Looking beyond Q2, we expect our net interest expense to continue to decline as a result of the declining term loan balance as well as improvement of our leverage ratio and the applicable spreads associated with the leverage ratio.

For modeling purposes, you should model net interest expense for the full year of 2024 to be approximately $9 million. We expect to record a tax expense in Q2 of $500,000. For the full year, we are forecasting a non-GAAP effective tax rate expense of $2.5 million. Finally, our EPS guidance for Q2 reflects the higher share count of 34 million shares. Operator, we are ready to take questions. Please open the line.

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Q&A Session

Operator: Thank you. [Operator Instructions] And we’ll take our first question today from Brian Chin with Stifel.

Brian Chin: Hi, there. Good afternoon. Thanks for letting me ask a few questions. Maybe just first, maybe a clarification. Historically, I have not been aware of Ichor having material exposure to semi equipment OEMs that are based in China. I guess, can you firstly maybe just confirm whether that – that is the case? And then maybe just since we’re on the topic of China, indirectly through your larger U.S. OEM customers, do you have any sense if China spending is sort of growing or at least sustaining this year?

Jeff Andreson: Hi, Brian, it’s Jeff. No, we don’t sell directly to the China OEMs. So we don’t sell to NAURA or AMAC or any of those guys. So we do not have a China channel. Second part of your question is what are we seeing in China? I think China was still pretty strong. I think it’s going to remain at relatively decent levels or good levels, I mean, in the first half, but indications are that the back half might be a little bit slower, but some of those are going to be offset by high bandwidth memory and some of these other areas that are going to start to learn continue to kind of grow quarter-on-quarter and year-over-year. So we don’t think China will stay at the same levels in the second half is – kind of our view today.

Brian Chin: Got it. And maybe kind of for my follow-up, maybe a bit of a hodgepodge on sort of second half and sort of how various dynamics maybe impact sort of this kind of high-level outlook. I thought it was kind of interesting, you mentioned how business could kind of either sustain maybe at sort of the 200 level that you’re sort of guiding reported in first half per quarter or kind of when revenue ramps and maybe it kind of goes up to 250. So almost seems sort of like a binary potential outcome maybe out to like Q4, right, like a 200 or 250 situation. But kind of – maybe that’s not the right way to think about it. But what sort of – what kind of inventory layer, I think, still exists maybe with some of your larger OEM customers that you still maybe work – they’re working through and they be – will be a little bit of a kind of throttle on revenue maybe over the next few quarters as that sort of burns off.

Is that maybe the right way to think about that? What is sort of the gross margin dynamic in terms of not being able to capture maybe a normalized mix, if there’s still some of this inventory layer to burn off through the next couple of quarters?

Jeff Andreson: All right. That’s a good question with 7 parts, Brian. I’m going to take it on right now. So the way I think about the second half of the year is I don’t think we wanted to give you an indication we’re going to be absolutely flat through the end of the year. What I would tell you is we’re now 4 months through the year. We’re not really seen as much of an inflection as we would have anticipated yet, but it’s not same at 2025 timing is clear to us and maybe to our customers at this stage. So we still view 2025 is an up year, year-on-year. The timing of when that is, will have the biggest effect on our fourth quarter. Second part of your question is really around where we are with the inventory burn off.

I think we’ll go through largely through the end of the year with some of the components still needing to be burned off. Largest impact is probably to our weldment business, and then machining second. I think from gas panels and stuff, they are kind of more normalized, I would say. We’ve – we’ve been running flat now for 6 quarters, something like that going through last year, we did. So I think most of those things have been gas panels are just kind of in the normal range of whether something falls out of a forecast and needs to be reconfigured. I don’t think there’s a pile up of gas panel. So it’s all in the component side of the business. Now having said that thinking about the gross margin, our qualifications that we’ve had that we just finished kind of describing in totality will have an effect on the gross margin.

And we typically accrete margin kind of quarter-over-quarter on revenue about 25%. It might be a little bit better than that. But our view of the fourth quarter, I would say, not regardless of revenue levels. But even at revenue levels like this, you are seeing our guidance – the gross margin is going up. A big portion of that is as we start cutting these things in and as we come up the learning curve and get the efficiencies in the factories and things like that worked out, we will get behind some of the cost headwinds from Q1, and we will see the margin continue to accrete at similar revenue levels. And as you know, once we inflect, we generally will outpace gross margin. So, I mean the view we gave you on the last call, I think is relatively intact from our view of our cost initiatives to drive gross margin.

Brian Chin: Okay. Thanks for all the detail.

Jeff Andreson: You’re welcome.

Operator: Our next question will come from Craig Ellis with B. Riley Securities.

Craig Ellis: Yes. Thanks for taking the question and all the color so far, guys. Jeff, I wanted to start just by following up on a comment that you made in response to Brian’s question. So, with regard to the point that you are not seeing as much of an inflection in ‘24 as you might have thought three months ago, which of the businesses, gas panels, weldments, etcetera, is that having greater impact on or is it impacting all of those about equally as you think about where we are and where we could be in the back half?

Jeff Andreson: Well, I think gas panels is still pretty close to two-thirds of our business or 60%, I don’t know the exact number, but – and then chemical integration, I mean they are going to be the ones that we need to see inflect. But the biggest impact to drive gross margin would be a recovery in our components side of the business as well because they will bring through more incremental margin on a per revenue basis. And so those are kind of the drivers, I think that we see. And our visibility, I think I mentioned it is really kind of three months with, I would call, good visibility. I think after that, there are pockets where it’s really well understood, and there is other areas where we are not seeing the visibility and largely because the industry has kind of pulled back the normal lead times and visibility.

Craig Ellis: Yes, sure. So, some of that’s just a cyclical effect. Got it. Okay. And then, Greg, just turning to gross margins versus our expectations, we are tracking around 100 basis points lower than we thought in the first half of the year. As you look at the business and the way it can trend in the back half and admittedly, we have a hard time seeing beyond maybe 3Q, but how do we think about gross margins? Are you thinking that we can execute to fairly steady gains that 20% to 25% incremental margin, I think Jeff referred to, or is there either any cost item or mix item that can give us more of a step-up as we think about second half trends? Thank you.

Greg Swyt: Yes. Hi Craig. So, as Jeff said, right, we expect that as we drive incremental revenue, the 25% flow-through is still where we believe we are driving to and expect to see. So, that will continue as we move through the year. The other thing is, as Jeff talked about, is we have got our proprietary side that will start to drive some incremental margin improvements in the second half of the year. How much we are working through all of that, but for now, the 25% flow-through is what you should still model.

Jeff Andreson: Hi Craig. Maybe just to follow-on, is I think our view of our, I will call it, internal proprietary products that we are now integrating into our existing gas panel business, not necessarily our new generation of gas panels is tracking to what we expected as we kind of enter the year. I would say with the exception in Q1, revenue was very similar, but we just kind of – we were too low down the learning curve and cutting some of these new fabricated parts, but they will quickly overcome it.

Craig Ellis: Got it. That’s helpful. Thank you very much.

Jeff Andreson: You’re welcome.

Operator: Our next question will come from Krish Sankar with TD Cowen.

Krish Sankar: Yes. Thanks for taking my questions. Just had a couple of them, one is, when I compare or contrast to your closest peer reported last evening, they have been kind of growing revenues for the last couple of quarters. You guys have been kind of flat lined. Is the delta as simple as they are more tiny semi-cap OEM exposure, you have more silicon carbide, or is there something fundamentally going on with the top large U.S. semi cap OEMs?

Jeff Andreson: Well, I don’t want to speak for my competitors, but we overlap around 40%. I would say largely, I don’t see much deviation where we compete. Having said that, obviously, some of his upside was this China revenue base that I don’t have a channel for or we don’t chase it as well. The services business is different and you recently required another kind of, I guess I would call it a sub-fab gas delivery business as well. So, we don’t overlap as much as people see, but where I think we play, I don’t really see if the bottom line question is, are we seeing share shifts, we don’t see it. So – and so the profiles are just a little bit different because the businesses are not apples-to-apples.

Krish Sankar: Got it, Jeff. And then you kind of spoke about EUV delays for leading edge. I am kind of curious, just can you just talk to the mechanics of like when your EV customer ASML gets a booking to when they ship a tool to when you get the order and when you ship it, can you just talk us through the timeline, because I am just kind of curious how to figure it out compared to this year versus next year and given their build-out profile?

Jeff Andreson: We ship about five months before a tool can be shipped by them. And then I don’t – I am not going to report to know their revenue recognition on the other end. But we are about – we go in about five months before they deliver a tool. We did see, again, some modest reduction within the quarter from the entry point of the quarter. And then we have seen it kind of – when we talk about the midpoint being down a little bit quarter-over-quarter, it’s probably about half silicon carbide and half EUV. And then they have taken down some of their build plans, and I think they have been pretty straightforward with their comments. And so that just flows through to us. And all we are seeing is it going into 2025.

So, it sets us up for a good growth year in 2025 as I look out to EUV right now. And now the other thing we are doing is we have had this relationship now for probably 6 years or 7 years. I think we are starting to pick other subassemblies up and things like that, that are helping us kind of increase the content we get on each EUV tool as well.

Krish Sankar: Got it. And one final question, if I can just squeeze it in. If you kind of spoke about on the inventory side to Brian’s question, how gas panel inventories are kind of normalized, but weldments and machining are still pretty high. I am just kind of curious, if you look at your products, where would you say is the stickiest market share to the lower? I am guessing gas panel is probably high market share or it’s pretty sticky compared to machining and weldments, which could be more fungible. Just your thoughts on that would be helpful. Thank you.

Jeff Andreson: Yes. I would say certain portions of the addressable market within weldments are highly fungible. We call it orbital welding in a little more of a less skilled. When it comes to TIG and more sophisticated combinations of weldments and subassemblies are a little bit sticky. I mean in the long run, nothing sticky to be honest. But I think with machining, it’s fairly sticky. Those take long qualification period. So, once you have a machine shop, that becomes fairly sticky in the long run. And obviously, with gas panels, we still view ourselves as the largest market share, somewhere around 30s, low-30s, I would say, percentage of market share kind of globally. So, that’s pretty sticky as well. And new entrants are fairly rare, maybe one in the last 5 years have come in, so.

Krish Sankar: Got it. Thanks Jeff.

Jeff Andreson: You bet.

Operator: Our next question will come from Tom Diffely with D.A. Davidson.

Tom Diffely: Yes. Good afternoon. I appreciate the chance to ask a question. Maybe, Greg, first a clarification on the cost side, for the components, was it material cost, was it expediting, what caused the variance in the cost this quarter?

Greg Swyt: So, on the components side, Tom, so really, it was, I would say, more of a mix within the customer mix there, not…

Jeff Andreson: Well, that was about half of…

Greg Swyt: Yes. About half of the miss on the components. Not expediting, we are not seeing any of that now in the market from supply chain on fees and things like that. It’s more about the customer mix with inside of the components.

Jeff Andreson: Specifically in machining, when you are starting to ramp up, you are doing smaller lot quantities, so you are just not – you are not getting as much throughput. So, it’s almost equates to like a learning curve. And as the more volume you get, the lower the average cost per unit will come down. So – and we just didn’t hit what we thought we could coming out of the gates.

Tom Diffely: Okay. That’s helpful. And then when you look at the proprietary products that you have going forward weldments, fittings, precision machining, which of those do you think is the biggest market for you ultimately? And is there any type of a margin difference between the three?

Jeff Andreson: I would say from the least sophisticated more ubiquitous types of parts, they are probably in the low-30s and you might get into the low-40s. So, the range is not that far off from them. I would say the markets that we address today in precision machining and things like that are kind of measured in billions and components and things like that. So, there are big opportunities. Individually, I would say the flow controllers are the ones that can help move the needle the most in the long-term. But in the near-term, it’s definitely going to be the components I have mentioned on the conference call because those are going into existing gas panels, we manufacture today so that they are also going on the new stuff, but the new stuff, obviously, is in early stages of qualifications.

Tom Diffely: Okay. That’s helpful. And then finally, when you look at – you talked about some inventories that you needed to burn off. But at what point do you need to start building inventory for gas panel? And how far before revenue do you start to see that?

Jeff Andreson: Well, I would say maybe the way to think about it, Tom, is that when we will know the inventory burn is largely gone when we see our component business start to inflect because they have the longest lead times. I mean our contractual lead times are three weeks, four weeks for gas panels. They are longer than that for the EUV gas delivery, but the volumes are much, much smaller, obviously. So, we usually see it on the components side, first. And that’s still running fairly sideways for us in the first half of the year.

Tom Diffely: Okay. Thank you.

Jeff Andreson: You bet. Thanks Tom.

Operator: Our next question will come from Ross Cole with Needham & Company.

Ross Cole: Hi. Thank you for taking my question. I am on behalf of Charles Shi. So, in the past, you had mentioned that you expect the two largest OEMs to reach a restocking point in the second half this year. Do you still think that’s the case that they might not want to wait until inventory get back to historical normal levels, or do you think that the management of those companies will still want to maintain a higher inventory buffer than they have in the past?

Jeff Andreson: I would say – I don’t know what levels of buffers. I know that we are carrying higher levels of buffers, which should alleviate their need to do it. So, we have added safety stock to be able to handle bursts and things like that. And so I think once they get through their inventory normalization, in those particular pockets of our component business that they will be back to normal lead time ordering.

Ross Cole: Great. Thank you.

Operator: Our next question will come from Christian Schwab with Craig-Hallum Capital Group.

Christian Schwab: Hey. Great. Thanks for taking my questions. Would you say that on your utilization rate on gas delivery systems that you are keeping your workforce and the fact you are a little bit elevated with the hope of being able to gain market share if – when the recovery starts in 2025, or have you kind of leaned that down?

Jeff Andreson: I would say we have right-sized our workforce, but we leave enough excess such that we can burst think of it as in the 10% to 20% range. So, we – when we have lowered our, I will call it, the direct labor workforce quite a lot, we still keep some excess capacity such that we do get pockets, and we have to address those. And so – and then I would say definitely on the components side because those are tougher skill sets to acquire as you ramp, so.

Christian Schwab: Okay. Perfect. That makes great sense. And then my last question, kind of regarding a NAND recovery, right? I mean the NAND manufacturers are just finally coming out of kind of almost an unprecedented money-losing situation, given such a consolidated marketplace, and they have a whole lot of money to get back for the money that they lost to make future investment. Do you think that there will be a substantial improvement in your NAND business in ‘25? And I guess if it is, is more ‘25 weighted, it seems to me that without a material increase in smartphones or PCs, that we kind of need that in order to see a material improvement in NAND or am I thinking about that wrong?

Jeff Andreson: No, I think you are largely right. I think NAND inflecting will be very beneficial to Ichor, I think our position with our largest customer had the largest, I will call share of the NAND market as soon as that begins to inflect. And I think the view is that it will inflect in 2025. I have also – I am not the expert on AI and all of this, but NAND is used in that as well because they need the storage near the new AI, Generative AI and stuff. So, I think that’s helping NAND as well. Obviously, we are seeing that with some strengthening on the DRAM side and things like that. So – but I think you are right. I mean NAND is at its lowest levels. And I don’t want to say forever, but it’s pretty close, all-time lows.

And I would say recently, somebody talked about the kind of the material side, engineering side of this being less than half of WFE for the first time in history, too, and you get the litho guys being a significant percentage of it. And so while we have a position there, obviously, the ASPs on that are significantly bigger than process tools. So, a percentage of their content is much lower than a process tool.

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

Jeff Andreson: Thanks Christian.

Operator: There are no further questions at this time. I will now turn the call over to Jeff Andreson for closing comments.

Jeff Andreson: I want to thank all of you for joining us on our call this quarter. I would like to thank our employees, suppliers, customers and investors for their ongoing dedication and support. We look forward to the opportunity to meet with investors during several upcoming investor conferences, including the B. Riley, Craig-Hallum and Cowen conferences taking place later this month and the CEO Summit in early July. Please feel free to reach out to Claire directly to follow-up with us. We look forward to updating you on our Q2 earnings call scheduled for early August. Operator, that concludes our call.

Operator: Thank you. This does conclude today’s conference call. Thank you for your participation. You may now disconnect.