ENTG - Earnings call transcript Q4 2018

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Operator

Good day, everyone, and welcome to this Entegris' Fourth Quarter 2018 Earnings Call. Today’s call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Bill Seymour, Vice President of Investor Relations. Please go ahead, sir.

Bill Seymour

Good morning, everyone. the XXXX. for announced and fourth we year full today financial our results quarter Earlier

begin, as would statements. we which and today a Before I of are will our listeners number in include comments outlined SEC the with that in of to refer some our and forward-looking presentation. Reg this On refer non-GAAP this will to risks on also These detail involve the information filings like the statements uncertainties Please defined financial G. measures call, and SEC. to slide the reports by remind we disclaimer

You website. our table release press our can find in well today’s on reconciliation as as

call our the and are will CEO; to our Greg CFO. Bertrand. On Graves, Bertrand hand today Loy, I it over

Bertrand Loy

I fourth lines open on details the guidance will on and first comments XXXX. performance, year quarter Bill. provide quarter then full financial Greg some will the with our then of for for results questions. and make you, follow and our more Thank We'll

me Let QX year full the XXXX. and of by start covering

Our capped off Entegris. quarter year record for a fourth

X% our During resilience our especially and of quarter, unit year half business in up strength This of sequentially our the were sales QX second grew XX% performance, the showcase model. the execution XXXX, above and the of versus guidance. driven of

XX% filtration markets of with For for our in way line demand sales we whole approximately expectations. across for growth XX%. our led purity grew the range again increasing all need the outpacing and strong XXXX, XX%, with of Organic as advanced sales products. once drove grew Microcontamination the our organic

in for second meaningful we acquired Microcontamination. half contributor Gas of Pure to June last SAES year which was addition, the a the growth In

adjusted for The line significantly of XX% in our year. grew EPS divisions our line line the EBITDA bottom grew XXXX. by SCEM also AMH Consistent faster X% respectively. grew performed in expectations. rate and our than The other grew top our and with we XX% non-GAAP XX% two objective, and business Indeed, our with strongly the

creation to led During the allocation value year our our shareholders. decisions additional for capital

three First, of Flex the for businesses, the companies, and year, Gas over products backlogs first control purity for two in these for half grew as PSS we from SAES, well Pure are need with in acquired demand for benefited the positioning and PSS, year equipment sales businesses need them strong the in process the XXXX. gases. second which SAES and finished greater half process the strong greater also performance Concepts. These

financial as Second, term we is further our flexibility strengthened our established new we a loan increased in refinance November currently our and and which capital structure undrawn. revolver

the in Finally, our year, through X and long-term million outlook, shares this repurchased stock. confidence January our during reflecting we of over our and business fourth of quarter

more the demonstrates and on chips. need our concerns we industry really continue technologies second It and navigated society back am model. be headwinds. continue how resilience of that team to like value AI, believe XXXX, proud Enabled by to semiconductor short-term attractive. will of macro aside, secular our continue to our IoT, Looking XG will I half Putting

key to growth industry of beneficiary addition In Entegris positive two intersecting underlying the is drivers, themes.

greater reliability its is core, increased and one is the purity greater second requirements first And materials. filtration excellence. positioned and achieve The the need of resulting uniquely device class solutions. global operational At leads importance Entegris customers purification yield higher and of is to complexity, new our is which capabilities position of value about increased device scale, for technical and achieve combination more to our this with performance. and and advanced world levels helping our

how it unit-driven drivers and The remain on industry secular growth like environment I'd impacting for XXXX, our provide Looking demand prospective to the ahead intact. some business. we see to

grow to continue to MSI expect we result, XXXX. a As in

for transitions node expected and short-term We business also technology more These in to expect drivers increasing the we positive softness requirements. And up intensity XXXX than the to impact will our be impact in spending. purity growth for it all to another expect for to we of I capital to together, are expect approximately be and call financial our resulting Greg? X%. sales record now to offset materials see Entegris. XXXX the detail. year of turn Greg Putting

Greg Graves

free driven had which fourth our Thank pleased by performance reflected year many sales, execution, record a EBITDA, you, with QX Bertrand. our be of levels in growth XX% from sales $XXX healthy and ago. and sales. unit-driven grew X% million full-year and We sequentially reasons cash quarter flow. of grew to Sales

Pure were share notable GAAP per was was with sales capital-driven for $X.XX. EPS up was expected, basis, down Gas, the the sequentially XXXX. non-GAAP up a diluted XX% On QX, earnings SAES As which QX exception from of $X.XX, quarter.

Moving on margin, the included with write-up associated Gas the SAES negative million gross inventory of to gross margin impact $X.X acquisition. Pure

year. last margin non-GAAP in Pure expected the Our of gross of were margins as XXX primarily driven to The basis addition the down SAES gross was Gas points by portfolio. decline from the XX.X%

Pure non-GAAP line XX% amortization GAAP expect assets and in with Non-GAAP intangible associated be million of on gross million, of the to margin operating operating was basis included expenses expense integration with of QX. guidance. We costs $XX in of in QX purchase $XX of a Gas. approximately $XXX.X our $X.X million SAES million

quarter. expenses or to the in operating operating revenue. Non-GAAP be $XX.X of approximately XX.X% We first $XX was million income non-GAAP million expect

to benefit the reorganization year tax legacy reflecting Our from a X% for full GAAP benefit. rate allowed XXXX, tax us that was harvest certain one-time

in these Excluding our and for rate the QX. non-GAAP was XX% impacts, tax XX% year full

or EBITDA rate revenue. quarter Adjusted expecting our was XX%. million, are to XX% be For XXXX, $XXX the of for XX% to tax non-GAAP we

represents in EBITDA, revenue XX% XX% year. adjusted which is of we $XXX a XXXX, over For prior and increase the generated million

sales gases. to specialty Adjusted and was Microcontamination year. QX in was Chemicals of for last investments were ago. million and operating quarterly margin SCEM mix. Turning The from favorable for of $XXX X% margin our The or was growth grew a operating up from driven MC the Control driven in division. in last less Specialty continued down by graphite Materials to and sales primarily performance sales from year. $XXX Engineered for by SCEM same by QX or million year addition manufacturing primarily growth XX% to support logistics materials product decline period XX.X%,

portfolio. are as offset XX.X% from businesses by QX handling of Materials sales quarter drivers the or small weakness strong liquid impact for fluid in from filtration Adjusted clean MC realized packaging growth favorable part that organic photo in of of benefit MC year etch softness as positive SAES, Excluding operating operating PSS strong points year. impact and Advanced business. quarter. for MC to to XX primarily as up synergies was for down the the margin and were would capital-driven the gas margins $XXX from sales such sales QX from throughout last of fourth XX.X%, last were The million basis the by the in wet We in points SAES Handling filtration. AMH divestiture The and decline expect were factors the margin year. Adjusted impact for decreased the expected is offset basis will positive by AMH a but were non-core flat in The driven due last These of of SAES cleaning was the and last sequentially. XXX up X% year XXXX. from growth demand addition acquisition. of

initiatives operations the our cost-savings into softness most are year To As further AMH negatively has efficiencies focused in implementing we $XXX most manufacturing. capital-driven the address environment. and for flow impacted cash $XXX was going million. been from the the of free flow million was operational primarily profitability XXXX, business, by Cash industry the in this, on

of of reflecting new part third term share million by loan, offset cash from million. $XX during used repurchases. Our the impact Uses to cash the balance the increased cash included $XXX quarter of for the quarter, in CapEx

$XXX the CapEx. year, in we invested For full million

$XX our to Consistent in and for expect in $XXX XXXX filtration, handling, used we product million quarter. in dividend spend advanced We new allocation our solutions. ongoing deposition, to related gas wafer investments specialty strategy, to quarterly approximately capital and our growth with support introductions the million

fourth average million, X.X approximately total the the $XX. For a we for of repurchased an approximately shares $XXX January, and of through end quarter price or of million

result suspended buyback our program. merger a proposed we've of with the Versum, As

We expect shares XXX be diluted for XXXX. share year full approximately million count our the both to QX and

remain for to modeling, expense at to quarter, interest the levels. item per the our important term to your assuming note million in of expecting rates with we're current their Another approximately XXXX $XX size increase increase interest loan, in

Turning to level same as be we outlook fourth XXXX. our expect approximately to of at sales the the quarter for QX,

our which now are operating business back quarter. I'll pleased turn approximately and for closing We also the same generate comments. and gives level performance in to us financial cash going non-GAAP XXXX; summary, be great flow, Bertrand to positioned as In XXXX. be into some to at our flexibility significant with we well EPS continues it the fourth expect

Bertrand Loy

Thank premier with that to announced combine equals. two merger highly together significant and is create believe our investors. This truly agreed that a provide the natural Last Materials complementary will to will you, this to unique diversified week, materials that portfolios specialty is our a our of benefits fit Versum we customers, a bring combination and Entegris Greg. employees $X company. billion in transaction We

soon intend pleased results have this received our week this I'm record as resilience pleased We and next the S-X statement are for model unit-driven our as response We the enthusiastic business to proxy we with by with the XXXX. conclusion, filing In submit month. so early in of HSR and far the announcement.

XXXX. another record are We performance for in well positioned very

a Operator, turning dedication Entegris' to want will Finally, the direct is teams the the of they provide customers. success our their quality we and questions. before now Entegris' my world and take result service To work. the to to around of appreciation their them, Q&A, you. thank I the efforts of all express their for

Operator

from you. [Operator our take Instructions] Hari We'll first Sachs. Goldman at question Toshiya Thank

ToshiyaHari

if to and color you you hoping morning, X% growth focus more XXXX the perhaps the my I and you're Bertrand, I around was Good revenue And the first Hi. provide again you're underlying MSI question of also results merger. little think, areas guess, making Congrats part bit in on you the guiding or segment CapEx? be year-over-year. portfolio. can XXXX think your helpful. guys. on by areas share -- a could third congrats then, I I some assumptions of on the highlighted said within past, you and That grow will growth announced

of can you couple a helpful? that of year be contribution will to Thank this run that maybe about you're If you. particularly excited through areas terms grow in

BertrandLoy

Toshiya. Well, question. you good Thank the for morning,

industry the industry expect next me we fairly say quarters. considerations some maybe for So that general environment. let to around start It's the the with fair be to probably choppy

mid-teens other words, in Having NAND expect to trend in XX produced at in be XX the Specifically, CapEx we benefit more versus last expect we starts. in wafer said so secular for be chips to And up all growth below year, XXXX the we XXXX. and we expect starts that. wafer that, the to industry down of obviously, from and modestly, to layers only line be expect

the for We complex advanced greater solutions expect more and materials geometries. the those more need intensity at from purification

that The is expect in logic XXXX thing the play foundry should node other the transitions important number that segment. and a in of favor in our we

or the the about good going industry primary great trying points come pretty growth be growth feeling that. our from, Trying should SCEM. guidance so I resilience and execution, to context environment, well, I of expect if business in our understand look XXXX, the you explain the come the to is from maybe would mostly those to our Microcontamination muted that of to of fairly where quality driver. a think to model at So and And

years. and a those divisions most in most where know, is two exposure past CapEx, -- you result that see excitement three those of upcoming are XXXX the number But beyond. one. have as the As in invested this of two for frankly have the terms where to we we and opportunities also the least divisions probably the And growth

ToshiyaHari

second I margins, then around follow-up, you And quick in synergies the talked Great. half. the SAES contributing a guys suppose to as about

reductions business AMH given your You about guys tough the little also potential a in cost talked bit backdrop. just

and If dynamics two XXXX, be XXXX you helpful? Thank late can you. and elaborate margins on we that should how think would those about into

GregGraves

Greg. it's Toshiya, Hi,

business, was. first look look that point you not performance So when in first improvement business saying all, full-year-over-full-year, regards the optically at not it basis I'm business, -- of margin. We're -- year AMH operating of the to all, the we with sort couple at the worse XXX just I'm defending than quarters, of the last full feels of when

we the SAES a significant the XXXX, about see operating move we made million we closed regard As the see impact. -- talked total going first so of significant at think moved facilities those some within going the have we XXXX be we that those the the but impact an balance reorganization Recall, XXXX. in that end SAES, was have of to range, start the think beginning business we'll Diego the manufacturing we'll margin synergies AMH not will synergies, in positive impact through of as the of will $X big it in and San within then we to synergies a about really environment we $X as With some million on QX; facility into it's within to to forward. major move

Toshiya through we'd to range. MC, So move to we year XXXX just as expect trend that closer ended the up XX of we Hari that XX, and short

Operator

next Bank. from take our at Ho We'll Sidney question Deutsche

SidneyHo

very Great. much. Thank you

question the year-over-year. annualize side -- you how and year? another half of Following we I guidance, revenue half this think weighted. of more up way QX in already is, about if XXXX, you're think I you've the X% on guess Toshiya's been first second asking at the first half first should historically,

is be your think year? up is you guidance flat the will first throughout yield X%. Do So the relatively

BertrandLoy

importantly the available, end on based would versus CapEx the of of be the be a but and Sidney first two information impact memory to a the it's year going I function half favorable I advanced a was describing, node year. of is, year, more in the back So of from more One And currently and foundry. little that end the bigger things. to both up the in transitions advanced back bit logic environment expect

SidneyHo

My is question on helpful. expenses That's Okay. side. the operating follow-up

You about should QX? about think guys the good How talked job we things have OpEx you guys think -- I synergies. past have SAES in and level side of done a some the after the maybe pretty

GregGraves

Greg. is This

a of the on through think how year. industry relatively So with the to we balance upward as them environment bias slight through be would the move as unfolds, I the year, we maybe depending expect flat,

SidneyHo

gross follow-up All that. right. year as And should just think we progresses? as as the How margin well, to maybe about

BertrandLoy

volumes sort of increase, see and should the through improvement -- about think I year. as we the some that XX% range modest

Operator

Moving at Global on Mike Harrison to Seaport Securities.

JacobSchowalter

maybe strong, sort could book-to-bill in business a of are Good know little bit morning, you was in into this and for if Mike. is maybe said the how you for little a comment the sort deeper QX Jacob expectations Digging more on what that detail. SAES, backlog that's what XXXX but I was and of shaping up?

GregGraves

Yes.

So, Jacob, line. by specific I information -- we product don't backlog provide

your not So you to that going help would except to, that try do I with question. I'm nonetheless,

exceeded -- business think of that for you if velocity we XXXX, So as we of was SAES about exit QX I mean $XX the million revenue.

XXXX at industry high up in the you that versus and environment. $XX on of QX. down look be we that expect up CapEx XXXX obviously if XXXX a So full context was the from million a year basis, And to in is

array going again the of advanced proposition those have time labs. really gases expect the going into processed we And very to systems for deliver large So what on for able we value that that visibility into for the based levels much that have that to purification good to need greater talks systems, XXXX. we a the lead gas for all unique those are with to purity speaks

outlook feel So business. we the for pretty good about that

JacobSchowalter

each could then That's guys Okay. mix. Maybe manufacturing logistics SCEM out relative so manufacturing into investments called logistics, big to and unfavorable going product then over And that for and expectations sort maybe at carry helpful. very were of next quarters? the of sort margins, QX, to those in and an of you the looking in couple is investments of and impact the you frame how

GregGraves

That I we've facility, investment. mean the would made investing as we're and in around we've new So per need where volumes let say kind -- investment are a with two revenue investments we're ahead areas like well of catch where meaningful made our Specialty of coatings me And se. just up our graphite of Materials comment I investing I is -- primary capabilities would the the to ramping the business primarily in the some in said be investment. investments capacity,

Operator

at a on to Moving Fischer Duffy now question from Barclays.

DuffyFischer

morning. Good Yes.

year? expenses increased capital You if the cash talked You kind you flow? but a in little what we estimate mentioned the eat free think this the bit are about does do expense, takes obviously interest you the that walk of down and and look to through capital on go an EBITDA us cash number, can through EBITDA program; puts working does like? What then cost-save

BertrandLoy

So our are revenue is at of EBITDA our in to target obviously the the XX%, revenue. that for year that model, levels we're expect with we line about capital be -- XX% in talking which

through XXXX of through is the into tend So this dollars $X.XX revenue always I CapEx about I of year XX% and as always the be is year we our the free line. a through XX XX%. From XXXX play And bit. Taxes between did in then come also is focus the of commitment XXXX. a as house. for perspective, our which That's $XXX -- line, our around our a returns improving inventories least we EBITDA to and EBITDA million mean, up CapEx creep to to we at the of talked flow bit a slowed working flow one every capital, cash come days. incremental -- on Receivables, move focus into inventory right mean area this side

Duffy? question, the does So answer flow. of components those cash primary -- your that are And

DuffyFischer

Yes.

you how far buy versus QX? then back the so QX in one And back, housecleaning, many bought shares you in just Thanks. bet. You of

GregGraves

breakdown, of X.X have majority shares. roughly the million QX. back So buyback, have we would exact said bought that it the in we but million of don't I X probably been

share think balance So well as about XXX as when in the of when -- XXXX, for we think million about the QX should think shares. you count you

Operator

We'll Kapsch move on Markets. Capital Loop to at Chris

ChrisKapsch

Yes.

general. the that buyback follow-up a just in and Just share on capital allocation, --

flow that touched just on there so the this the a the forma suspended -- pro week until I I the you the announced. buyback. last of be think But deal am flow, when cash your interested the you're the that basis. Versum's, given X suspended over intent Is buybacks bit because even free cash be well think, that you'd guessing was of a time, I closing in free little resuming forma a merger as of, free leverage would pro as portfolio and both flow reliable your cash copious given given on

provide you post-merger? that color just is on can So thinking what

BertrandLoy

you're Chris, new one company that about being us the would the the that options leverage So, many and right to would until say we'll assessment be considering. you combined with company. And review your we're but capital very buyback with correct. Board the options, with What reengage which is heard have at X suspending our all of discuss also time today time of strong and allocation buyback be very available profitable balance sheet company a in you're a closing,

So that I'm those on be to productive I'm choices too elaborate it's But after we'll Board. for be a new early the with anxious discussions to the it very would making have closing. discussion. sure us

ChrisKapsch

businesses a and exception some Okay, but maybe a sensitivity you of weaker CapEx And even being that did surprised of your fair I did the think that the in that, bit. felt is mention environment, to then you terms little you SAES mention enough.

right the Is about for those backdrop? if it story of and business that's secular macro part its a off across and end-market legacy is the now nodes overall is kind backlog demands products of shrugging it there well? wondering it or for the just software have I'm sense as mature what So you and

BertrandLoy

in what question. that described No. industry Thank you products the asking CapEx the CapEx. you of And differently recall, than behave many now we call for occasions if that we've a had slightly number have we

the of gas another the because that And revenue actually gas really but mean anytime for for demand the stop tied QX. And to did industry would in business, result of is product not purification other have about be sequentially product conditions. are talked you side as for business. correlation cleaner fluid those flip WFE. is those filtration handling I the And for more a those I -- need those our of process some Both all driven be between CapEx. a by mean, the like soon. those and products those lines that actually example are So businesses would the grew requirements that less going I that, reason businesses FOUP of or platforms products sequentially But of our straight -- decline to

stronger there. So there correlation was a

many products call demand and different. CapEx for are in words portfolio comes different very in our in we the forms So product other what shapes those and patterns

ChrisKapsch

near-term Got then those has you one. it, out some of actions? the quick what AMH, you. that's order magnitude little in just one And terms takeouts there just mentioned anticipate taken you any from sort you last a self- helpful. while industry backdrop help softer is Thank In can Thanks. -- bit costs, of

GregGraves

not would marked expect basis XX%. shift through in close on the industry I the of But to looking we'd volumes mean I the side the margin in expect XXXX that XXX the CapEx trend year probably points. that we're And around -- we for year business operating to up right until from a is that business background. What full ended say

Operator

Scarnati Taking from our Citi. now at next question Amanda

AmandaScarnati

decreased of little talk of that in first you'd about of the a your see instead utilization? Can morning. that lot expect A the fourth in of sort in that on question sort rates down revenue quarter quick in of Good industry quarter. they've a stability utilization hearing We've just you of quarter coming bit customers. fourth kind been kind -- to how of backdrop the first

BertrandLoy

Yes.

as that's QX think we're that So, industry correct assumptions and Amanda, the we conditions. the you're using part about of

versus seasonal starts to down modestly utilization wafer pattern. expect than We usual be and more probably and so fab QX slightly

really the has as advanced that migrate geometries. for complex the solution more and need to do will I secular So to mentioned drivers is, they to more sets advanced what to filtration materials as than transitioning industry better allow start solutions that more and to is us

So that's number now the for years. theme that of we've been developing

of materials beneficiary participants. help resilience And the we'll us greater for need going intensity model versus the our greater beneficiary that's industry business be will and many increase be of the We purity. other to of

AmandaScarnati

to to would the of Do a node terms those we see specifically half if to big XXXX? step sort is second that year under assumptions, really of still second a sort we pop down revenue half in tell in it full transitions But be expected what's what the see up. And second expect growth. be in too X% the stronger, of utilization to the as happen and you're would expecting just rates or early of going quarter expectations in continue

BertrandLoy

just noise a There's the right think little Amanda. of bit lot in days. I it's early now channels, a

update think information always, annual as our we'll information guidance need our new will better annual if earnings be So every available, we guidance. I be becomes our updating and one when and of call

AmandaScarnati

And lead you are us how then at year? last that's can current and over your just the times all remind what changed

BertrandLoy

Lead times line. constant product been have across relatively

capacity going big lines, Having well and or we have purification our our factor general. liquid not that, in So a as platform FOUP are graphite, capacity added filtration business. be products that's we in in to said gas even adding

position better in XXXX. would on customer we that in demand capitalizing fully of in believe terms be we So

Operator

final We'll today our Ho take at question Patrick from Stifel.

PatrickHo

and investments certain times, nice talked, in the in least Bertrand, a on you've quarter. you're making remarks much about at prepared areas. you very and other Thank your congrats

and of give I to over where this see you the talked line? to don't on you but to little I think want starting of start give of color super benefits off for we'll few of graphite investments areas little and you you can the how you next call years if that understand, a Can a about the a specific, give bit bit other today. Company pay top particularly color

BertrandLoy

repeat what I've said I Well in I many mean before. calls will

purification I of of number graphite, have very deposition the that already I and significant one believe which made are combine going but wet for and to filters for So a the you market, not. in And driver made a liquid been of liquid have would view That's is investments that reasons we've filtration we that areas we've clean Versum. advanced hit flagged materials. and growth some that some times in we significant purifiers, we've the poised both us. technologies, with the applications etch have investments believe decided around the We spoke be before industry in many and an forward growth area certainly targeting

I have made the those around industry as accelerating we'll and think we enable forces our Versum. critical we investments few So joining some of join very advanced process those is investments past to technology in materials years forces obviously be with

across across the periphery industries. what opportunities about and those of slightly it's of customer diversity are and semiconductor frankly our So of the the It's portfolio. the portfolio under opportunities the see. even I like Many application. really is breadth both that I It's segments the across

So portfolio. feel quality I the good overall of the about

PatrickHo

past. Material you particularly side; Great. of materials process the the as And talked question type wins about of record my follow-up mentioned Advanced business terms in in the of you

into and at as guess I whole turning on guess of process to I a timing recovery side little some going look win is you your XXXX we on with this see well? year based are some some those that or ramps and on and memory that's of weighted volume, the more the as is of would see As a when say towards records we'll logic we of end

BertrandLoy

say driven business, about our think product both. would If I for unit the I it's

chips the controls number greater the more you And advanced know, material of XD mean, intensity. I happening as a on segment couple on node exciting. greater the will really challenging for is in layers opportunity the the ratios, our the the obviously, transitions be aspect NAND NAND of So, customers. important greater logic also what and But foundry XD very the solution. contamination

So think in and of number if XX in only produced above. about you be the That layers we expect expect was XXXX, to at we wafers what about XX% XXXX. XX% NAND

expect we would that to XXXX starts flat wafer we if that material fabs, continue our true and even XXXX, and and through be essentially I XXXX well. the in obviously play for in will to are So expect memory intensity as favor to NAND be

logic drivers other in and words. the Q&A both be So will memory End of

Operator

And us. for that Thank you call. much will good a and today's day. conclude with Have ladies very joining we gentlemen

now disconnect. may You

Bill Seymour	Vice President of Investor Relations
Bertrand Loy	President and Chief Executive Officer
Greg Graves	Executive Vice President and Chief Financial Officer
Toshiya Hari	Goldman Sachs
Sidney Ho	Deutsche Bank
Jacob Schowalter	Seaport Global Securities
Duffy Fischer	Barclays
Chris Kapsch	Loop Capital Markets
Amanda Scarnati	Citi
Patrick Ho	Stifel

Entegris (ENTG) 5 Feb 192018 Q4 Earnings call transcript