Entegris, Inc. (ENTG) Earnings

Management highlights

### Overall Quarterly Performance - Q2 2026 total revenue was $883 million, up 11% year-over-year, exceeding all prior guidance ranges. Adjusted gross margin hit 47.6%, its highest level since early 2022, marking a 70 basis point sequential improvement and 400+ basis point year-over-year expansion. Adjusted EPS was 93 cents, also above guidance. - Free cash flow reached $120 million (14% of sales), with a 20 day year-over-year improvement in the cash conversion cycle. The company repaid $200 million of debt in Q2, reducing net leverage to 3.4x. ### Strategic and Operational Initiatives - Exited the non-core U.S. life sciences fluid management business (less than $20 million in annual revenue, dilutive to margins) to concentrate resources on high-growth core semiconductor segments. - Announced closure of the Logan, Utah diluted facility, the third manufacturing footprint rationalization since late 2025, streamlining operations without impacting core customer supply. - Proactively scaled capacity ahead of market demand, leveraging existing global manufacturing footprint and prior investments. Direct labor has been increased by a double-digit percentage since Q4 2025 (over 20% since end of 2025) to unlock existing network capacity and address emerging constraints early. - Continued progress on four core operational work streams: network optimization, centralized procurement for better supply chain leverage, yield improvement and scrap reduction, and sustained productivity gains across labor and equipment. ### End Market Positioning - The company is positioned to benefit from an accelerating semiconductor investment cycle driven by AI infrastructure buildout. Advanced logic (40% of total revenue) and memory (30% of total revenue) are the core high-growth end markets, with mainstream logic showing modest improvement but remaining mixed. - Growing content opportunity at advanced nodes: recent HBM4 and TSV CMP wins, and ~2x year-over-year growth in molybdenum precursor demand for AI memory architectures highlight this trend. - The Taiwan facility KSP (for liquid filtration) is on track to reach break-even in Q3 2026, ahead of schedule, and is already participating in the current liquid filtration growth ramp.

Guidance

- Full-year 2026 MSI industry growth expectation raised to 7-8%, up from the prior beginning-of-year mid-single digit assumption. - Q3 2026 revenue guidance is $905-$935 million, representing ~14% year-over-year growth at the midpoint. Gross margin is expected to be 47.5-48.5% GAAP/non-GAAP, with non-GAAP EPS of $0.96-$1.04 per share. - Q4 2026 revenue is expected to grow ~4% sequentially from the Q3 guidance midpoint, translating to mid-teens year-over-year growth, with both MS and APS projected to grow over 10% year-over-year. - Full-year 2026 net leverage is now expected to end below 3.0x (high two times range), an improvement from prior projections, driven by stronger than expected free cash flow generation. - Full-year 2026 modeling assumptions: net interest expense ~$180 million, non-GAAP tax rate ~14%, diluted share count ~154 million, capital expenditure ~$250 million. - In 2026 H2, CapEx-oriented revenue growth will be driven primarily by WFE (low double-digit growth), with most fab construction growth accruing to 2027, followed by wafer unit growth in 2028. - The company reaffirms its long-term strategy of outperforming the underlying semiconductor market by 3-6 percentage points of annual growth, with sustained margin expansion.

Segment performance

1. Material Solutions (MS): Q2 2026 sales of $371 million, up 5% year-over-year. Growth was driven by advanced deposition materials, selective etch chemistries, and CMP. Adjusted operating margin was 20.9%, flat year-over-year, as higher raw material, logistics, and planned direct labor investments were offset by improved manufacturing performance and productivity initiatives. This segment is on track to deliver double-digit year-over-year growth in H2 2026. It accounts for approximately 42% of total company revenue. 2. Advanced Process Solutions (APS): Q2 2026 sales of $515 million, up 17% year-over-year. Growth came from strong demand across both unit-driven and CapEx-related segments, with liquid filtration delivering its fourth consecutive record quarter, and the FOOPS-led micro-environments business posting its strongest performance in over three years. Strength was particularly notable in Taiwan from leading-edge logic and advanced packaging capacity expansions, with North America returning to year-over-year growth. Adjusted operating margin expanded to 30.3% year-over-year and sequentially, as volume growth, favorable mix, and operational improvements more than offset growth-related investments. This segment accounts for approximately 58% of total company revenue.

Risks & headwinds

- Mainstream logic demand remains mixed, with continued pressure from consumer end markets (e.g. mobile) that may temper overall segment performance relative to leading-edge AI-driven segments. - Uncertainty around the pace and timing of customer capacity ramp, with evolving demand levels requiring ongoing capacity planning adjustments. - Advanced packaging market requirements and technology standards are still being defined, creating uncertainty around long-term market positioning and growth opportunities in this new segment. - Forward-looking statements are inherently dependent on market conditions and customer investment plans, and actual results could differ materially from projected guidance due to industry cyclicality and supply chain constraints.

Analyst Q&A

• Q: How should investors model the trajectory of Integris's CapEx-oriented business for H2 2026 and H1 2027, amid the global fab construction boom? /

  A: 25% of Integris's total revenue is CapEx-related, split between 10% from WFE and 15% from fab construction. For 2026 H2, WFE will drive the majority of CapEx revenue growth, with WFE order rates growing 20-30% in line with broader WFE market growth. Fab construction-related revenue will mostly accrue to 2027, as the company recognizes revenue 12-18 months after ground-breaking, during facility fit-out and tool installation. WFE growth will follow fab construction, with unit volume growth coming later once fabs enter full production.

• Q: What is the realistic incremental flow-through to gross margin for future growth, and are there any one-time factors boosting current margins? /

  A: A 150 basis point year-over-year uplift in Q2 margins came from a fixed asset useful life adjustment, but margins still expanded more than 300 basis points excluding this one-time factor. Sequential flow-through from Q1 to Q2, and Q2 to the Q3 guidance midpoint, has been roughly 60%, which management notes is the best comparable for long-term modeling. Management expects structurally higher margins through the cycle as operational improvements and volume scale drive ongoing expansion, even with intentional pre-investment in capacity to support future growth.

• Q: The 4% sequential Q4 revenue guidance looks conservative relative to current strong demand trends—are there specific underlying dynamics to explain this? /

  A: Even with 4% sequential growth, Q4 2026 will still deliver mid-teens year-over-year total revenue growth, which is already meaningfully above the expected 7-8% industry MSI growth. This guidance already reflects significant outperformance relative to the underlying market, supported by content gains from technology transitions and exposure to leading-edge AI semiconductor production. The outlook is consistent with the company's 75%/25% revenue split between unit-based and CapEx-based demand, and matches the current visible demand pipeline.

• Q: How is the competitive landscape for CMP looking, and have you experienced any share shifts from competitors claiming gains? /

  A: Integris's overall CMP business is seeing strong market-leading growth, particularly in CMP pads. The company is successfully growing, defending, and expanding design wins for both pads and slurries, and has made new inroads into CMP for advanced packaging that did not exist a year ago. The overall MS segment (which includes CMP) is accelerating to double-digit growth in H2 2026, and management is pleased with the CMP business trajectory.