ENTEGRIS INC Q3 FY2024 earnings call

Management Statement and Operational Highlights:

• Revenue & Margin: Third quarter revenue excluding divestitures grew 7% year-on-year but was below expectations. Gross margin, EBITDA margin, and non-GAAP EPS were within guidance.
• Division Performances: MS division grew strongly in CMP slurries, pads, advanced deposition materials, and etching chemistries. AMH and MC divisions were impacted by lower demand from mainstream logic customers, slower new fab construction, and reduced backlog.
• Operational Changes: Combining AMH and MC divisions to leverage synergies, optimize go-to-market, and generate cost savings. Progress on Taiwan facility and Colorado site construction. Negotiating CHIPS grant award.
• Cash Flow & Debt: Third quarter free cash flow was $115 million. CapEx expected to be $300 million in 2024. Paid down $65 million of term loan, with total debt paid down since CMC acquisition at ~$1.9 billion.

Segment Performance:

• MS Division: Sales in Q3 were $347 million, up 14% year-on-year (excluding divestitures) and up 1% sequentially. Largest contributors were CMP slurries, advanced deposition materials, and etching chemistries. Adjusted operating margin for MS was 20.7% for the quarter, approximately flat sequentially.
• AMH and MC Divisions: Combined, sales in Q3 were up slightly year-on-year. AMH division sales in Q3 were $182 million, up 1% year-on-year and down 3% sequentially. MC division sales in Q3 were $287 million, up slightly year-on-year and down 2% sequentially. AMH and MC are being combined to develop product synergies, optimize go-to-market strategy, and generate $10 million to $15 million in annualized cost savings.

Guidance:

• Q3 Results: Sales $808 million, up 7% year-on-year (excluding divestitures). GAAP gross margin 46%, non-GAAP EBITDA margin 28.8% of revenue, GAAP diluted EPS $0.51, non-GAAP EPS $0.77.
• Q4 Outlook: Sales expected to range $810 million to $840 million (8% year-on-year growth excluding divestitures). EBITDA margin 28.5%-29.5%, GAAP EPS $0.49-$0.56, non-GAAP EPS $0.75-$0.82.
• Full Year 2024: Excluding divestitures, sales expected to grow 4%, EBITDA expected to grow 8%.

Risks:

• Industry Recovery: Slower than anticipated industry recovery, limited visibility, muted demand in mainstream and NAND.
• Supply Chain: Discrete supply chain constraints impacting MC division, including valve access issues and contaminated HCl batches.
• Regulatory: Uncertainty around export controls and potential future regulations, with no quantification in current guidance.

Q: On 2024 and 2025 market views, expansion on mainstream and NAND, and molybdenum outperformance.

A: Bertrand noted 2024 market evolution with wafer starts up ~1%, industry CapEx mixed. Expect to outperform industry by ~3% in 2024. 2025 expected better with inventory digestion, PC refresh, and molybdenum adoption.

Q: Taiwan TSP facility timeline and sales expectations.

A: Qualifications progressing well, liquid filters taking longer due to process/supply chain changes. Still expecting $40 million sales for the year.

Q: AMH and MC reporting in Q4.

A: Combining AMH and MC starting Q4, with cost savings expected.

Q: Leading edge and node transition revenue patterns.

A: Consumable products start with early orders, accelerating in early 2025, normalizing after initial ramps.

Q: Export controls impact and segment performance in Q4.

A: No new report on export controls, MC expected to be fastest-growing division in Q4 with potential record revenue.