ENTG - Earnings call transcript Q1 2019

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Operator

Good day, everyone, and welcome to the Entegris First Quarter 2019 Earnings Call with analysts. Today's call is being recorded. [Operator Instructions] At this time, for opening remarks and introductions, I'd like to turn the call over to Bill Seymour, Entegris VP of Investor Relations. Please go ahead, sir.

Bill Seymour

Good morning, everyone. the for announced of first we XXXX. today, financial our results quarter Earlier

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

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

sales, Before this Bertrand, we've which I'd the I first the year. to accounting change over made out the hand like to to product treatment started quarter call in of point our inter-segment of

and to Our in produced before segment and practice the new ultimate recognizes the associated end being with products to components profit and another sold supplied X revenue customer.

to of and QX The segment million financials, most transfer the impact financials. but AMH segment Our consolidated old is the impact higher the it our cost. sales practice million margins components new This were in in with does complementary impact products the AMH. are X segment practice. $X.X and higher segments. adjustments $X.X are And was made does not course, change other at the with the

today's quarters in 'XX find the release, restated and sequential restatements segment year in we've earnings quarterly slide our financial can also You segment deck. for all XXXX financials and and earnings provided of prior

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

Bertrand Loy

on see for of industry details then on I our open line for for environments the how quarter provide the rest our quarter will Bill. performance, guidance first XXXX. the will more our questions. Thank the and of with results financial make second We'll Greg and expectations some year. follow the comments you, we

to like would started, Versum get address Before I the transaction. the of I termination

feel While demand in is happen, merger competitive excellence the world-class that We position, that also did confident very It be by continue we continue Entegris. growth operational repeating for need semiconductor better worth disappointed XG chips. more our believe next the X and not we of prospects. overall society will materials greater capabilities, secular will are the performance. the and nothing semiconductor Enabled like changes our generation technologies attractive. AI, materials be IoT, to Greater to intensity factors and defining will of purity and technical

of intensity As true In of you reliability. our all crossroads materials well yields and purity. set increasingly and and performance is other achieve the words, materials our customers know, levels at solution targeted for Entegris operates to higher critical

growing additional addition of to options broad and executing allocation on core on business, In creation our our capital to our focus area to value long-term a plan continue lead will that for we strategic shareholders.

more shortly. that provide cover now on But for will details We me let QX.

industry pleased in light the quarter, delivered line in incremental first in the our results essentially were quarter. this guidance. that the During performance that softness the I particularly am of solid we with with impacted

EBITDA, execution sales strong sequentially, as of results million quarter, first and of our we demonstrating of organization's this, the year-over-year and reflecting as quarter ongoing on focus control generated and again, first industrial in sales our $XXX operating were the In our execution once the the margins Our strength spite outpacing productivity demonstrated grew impact X%, the environment. the our cost of markets. We softer of platform. down well Entegris the enhancements. Sequentially, modestly, flat resilience were

sequentially. and X% non-GAAP addition, EPS was up In both year-over-year

some Chemicals. the Specialty impacted market first quarter. March, us I we color will the provide in in it now on and Finally, Digital acquired how

memory-related in customers wafer the the focused As was lowered said, rates on true working utilization than expected inventory in production down market This levels. where particularly softer I quarter. and was

let million DSC nodes This in generate essentially in capabilities. in DSC and earnings market and this Digital In leading-edge first we up year-over-year our year-over-year our number customers, was of result, or CapEx, quarter the chemical just to Specialty and accelerate deposition our modestly to industrial architectures As we logic of own more high-volume memory started significantly to DSC growers materials sequentially from a more Entegris' and and will contrast, provider and between of as a DSC, expected down sequentially. despite to chemical we neutral end advanced new business expect, both sales and to our of advanced to is equipment complexity say year-over-year to sales sequentially. device time complements up very and industries. the our benefit increasing materials. were materials. is manufacturing, customers of At to in is customers to significantly for the that be team. join to In semiconductor a and and And designing be million highly of node Entegris in manufacturing. expands part XXXX have serve the a finally, addition our our In $XX are as requires new engineered in our sampling pharmaceutical SCEM specialty ability existing excited both industry business. sales grew market capabilities customers, $XX soft you and DSC's transistions. would down me this to foundry, full films the sales mid-March, market, which tied synthesizing were acquired will year. semiconductor, year and And from quarter. DSC leader synthesis sales the chemical R&D wafer generation Chemicals,

let Looking ahead me of first rest XXXX, on the the at comment market.

makers the quarter I high starts referenced, As inventory levels. memory wafer memory-related confronted just declined during as the first

softness to second lower into We as quarter, continue to levels. their this the customers expect extend inventory

see as to particular, some the positive leading-edge business. logic are optimistic indicators of in are looking in the we year. recovery the there industry expecting reasons a In broader we the cautiously However, for later part to second both and our half, be

meaningful on the in year. any want are I for clear However, of CapEx counting recovery be to balance not industry we the that

As and level, of it very macro we XXXX, in node from a node benefit memory number logic these technology own transitions, foundry, business, our customers. Several at expect to benefit our materials, coatings the purification and we remain relates products high-purity parts including. Torrento microcontamination gas etch SCEM, advanced and division, drums; confident. electrical to selective AMH filter In deposition of transitions from and and etch chemistries. On EUV our a new bulk finally, our advanced X in and clean wet system; division, new our in SAES number will

very way continue to and our to value ways for shareholder we at value. M&A look been balance effective create capital addition, In to to has Historically, sheet use deploy a create our shareholders.

industry On spite acquisitions our the soft of above the the well expectation XXXX, other in namely completed PSS, side, performing in are Concepts Flex SAES, environment. and

forward, record additional DSC Looking another be focused it of perfect be targeting. the expect type filtration of to all examples are to for M&A us purification. we areas SAES businesses the in expect and we on year materials, of XXXX Entegris. are and high-performance together, Putting

exceed in sales $X.XX. we Greg financial and be expect details. We to our XXXX billion, EPS for to non-GAAP expect our call turn approximately Greg? the the I $X.X will now to

Greg Graves

you, Thank Bertrand.

slower year were $XXX in As of light X.X% solid, Sales million QX driven up was Bertrand GAAP QX basis, sequentially, XXXX. that our diluted from quarter Bertrand of of from primarily by a EPS non-GAAP earnings X% $X.XX, the referenced. share On first starts wafer X% the per a and sales QX $X.XX. industry grew ago. said, performance execution especially was down environment. was

margins gross $X XX.X% SAES gross the acquisitions. to included million write-up an on GAAP impact margins, Pure the of associated negative of DSC and Moving Gas inventory with approximately

The decline primarily XX% as Gas portfolio. in gross gross flat by were the margins Our expected addition driven margin of year-on-year to SAES sequentially. non-GAAP of the Pure was

on amortization XX% We of operating to of expect QX. QX approximately "deal-related" million with basis control. transaction, guidance in associated Non-GAAP in and GAAP of cost margin below reflecting $X the million $X $XX $XXX expenses expenses gross intangible Versum million, our costs million a million non-GAAP integration assets, be of $XX included in effective were of million costs severance. approximately operating $XX

in expect million XX.X% line Non-GAAP or quarter. $XX expenses model. We target million second our operating $XX million in with non-GAAP income $XX.X to was to revenue, of operating be the

rate tax for compensation. XX.X% the stock-based included to related GAAP benefit quarter was Our discrete and a X%

was rate tax same non-GAAP and included XX.X% discrete Our benefit. the

continue expect XX% be For million XXXX, to tax XX%. we the to or revenue. $XXX quarter our year for rate full non-GAAP of EBITDA Adjusted was approximately

million division. a by performance of and Engineered our to sales ago. for X% from or SCEM, Specialty declined $XXX Materials, QX year Turning Chemicals

MC, Adjusted a by were year. from The the last for As decline of was basis SAES starts. and a in over flat to business margin addition to due primarily XX.X%, quarter $XXX driven the anticipation Gas addition growth the basis Adjusted Pure last down was year memory volume points up XXX last or microcontamination record year exposed points lower XX.X% the but decline of most from to MC SCEM from investments capacity Filtration. manufacturing the our million XXX last The decrease wafer of in by the control, driven over for primarily margin XX% quarter sales portfolio. sequentially. sales Liquid strong was in is in decline SCEM period was year. and was future SAES operating of reminder, operating The in for operating same down in of margin and the growth. QX was from

other QX benefit AMH, that businesses X% in was in million. first or for non-core the benefited driven the XXXX. cost business. enhancement implemented the year. sequentially. last in of was of almost The decline was free million, as AMH points mix XX.X% QX year. expect a year-over-year Materials last AMH SAES year-over-year sales basis sales up fully from softness Adjusted negative $XXX negative divestiture from back a favorable product million margins and the operating capital-driven impact programs XXX reductions, more services QX margin but MC cleaning a was small are cash in by half Advanced Cash operations was flow margin for margins quarter down $X realized of and down for Handling, of flow and We from of from will synergies $XX

termination million. is from refund. made quarter worth million has It primarily variable year, million included of of quarter DSC. to the typically the compensation we during the the and first a QX first totaled transaction, collected flow reminder, for quarter shortly cash purchase a the cash lowest million Uses has end, $XX due noting As the $XX the the after of fee received $XX payment tax that in we quarter. $XXX it during Versum the CapEx

capital our to on in used XXXX with expect filtration improve our We for allocation new and quarterly liquid $X.X we capabilities CapEx dividend. $XXX product strategy, growth support to our million spend introductions, in packaging. and approximately million technical Consistent

share million of in for fourth transaction. the an repurchases, million includes the we million quarter through the approximately of approximately repurchased X prior announcement January This of For in the at January, average shares $XXX $XX. price shares a and total MOE purchased X.X to of end

count our XXX share QX. shares We approximately to expect be diluted million for

to $X.XX to $X.XX. we from to outlook we sales million, $XXX expect EPS Turning and for million range our be expect QX, non-GAAP $XXX to to

we the and modest trough in again despite with We target QX financial We of revenue the the operating line be in once profit are with environment. in performance pleased resilience with expectations revenue summary, an modestly for model. the improving expect decline model In delivered the half. starts CapEx our in softness the and quarter. year wafer with the our with our a declining we revenue, back Even sequentially, first in weak demonstrated to operating and

acquisitions. now earnings finally, We continue active And company strategic Operator, level higher of take to questions. positioned our XXXX. achieve to be we'll respect we a to with in

Operator

[Operator Sidney question Bank. Ho our we'll Deutsche Instructions] take first And from from

Sidney Ho

well? comment related you, of or started signs can a logic indicators on And it My a positive you just the process just have side little is memory terms first some seeing leading-edge bit play some you explain Is those was made that in can that to indicators. question Bertrand, on how as I timing, hoping mostly out? that is that more. you

Bertrand Loy

I environment will Sidney, that quarter So, remain the challenging. think second industry

mainstream led hand. and the rates expect one We back we be more of in the both for customers, those and those expect low on utilization see back end of level what to utilization but really to That's end that's the improve year, memory to of the us optimistic rates at for customers year. fab the

you logic know, The other and the and the back the memory. as indeed in back end of the our of transition year. SCEM in the filtration those factor of And that in is node transitions node in intensity and both end both year number should of the benefit business our

Sidney Ho

was different on revenue outcome great. that prefer. the synergy merger. identified a would that not it Versum side Clearly, the the you process. curious Okay, guys Maybe during question on But a you

something mentioned of range. somewhere you How you of assume you EBITDA. you margins in that revenue it And think EBITDA implies million $XXX at I $XX of million much if can long matter just XX%, or it yourself? a do the actually think achieve get you recognize time can is in future the it how and going revenues takes those kind of for alone of to by

Bertrand Loy

technologies we in about some could portfolio of the those a is that we DSC. for time didn't good revenue in much spend too we DSC we did history found have the be of part that I gives the I us, DSC such we unlock grab get it, I is hoping with enhancing to Versum that Entegris. a glad of get merger we Versum. say a that that I'm access Instead, don't a Look, to could Ultimately, but would synergies. at it old want way not something our now is think synthesis that be to as talking have position that. that are of so combination new selectively to opportunity that. through to example positive capabilities us what It's acquisition

pharmaceutical allows and access us other precursor, to served high-grade materials, our materials, applications. applications number gives hard materials, that mask market DSC expand into a also So industrial electric cobalt new of to us

So strategies. other to our continue create to as acquisition again, be synergies we active will we ways revenue find on positive

Sidney Ho

run has Okay, the maybe is team -- hop just EPS on focused just one could year. back it I'll the this very queue. next exiting last to one for me. basis target. $X been be in management getting it I know rate Or

share think still target we versus that Given on that the is current repurchases And relying market M&A a much the are conditions, how could about? we there?

Bertrand Loy

Right.

fair so There us. given industry for where say stand model. that of it's Sidney, setback were number we said So the a growth today current obviously into on a bit there's little that Having industry assumptions to environment of built a exit XXXX. to that, as a DSC, acquisition remember, number rate we number believe able close $X number and $X.XX the basis, with that's of we on to that that the should organic that be an and reach again, was run -- we a

So we that be decisions we allocation on number capital next a would the improve in months. further on number the expect position depending may to we to continue that the as that make active be acquisition over front we of XX and

Operator

take from Patrick from Ho Stifel. we'll next our question And

Patrick Ho

recovery. think follow-up updated the first industry the us can that, for to getting giving What in I guess, you're view memory about that lot Bertrand, data Maybe, Hynix out recovery of regarding ensue data from as XXXX? maybe of your Micron mix that market give or there? And from you that, and environment, MSI a obviously, heard feedback the gives of you will are your starts points recovery. second you tracking that wafer terms potential We've comments where customers and a that's a the to half confidence

Bertrand Loy

in So to the take-or-pay MSI, indicator a think as be But year-on-year. we years. Patrick, lot for instituted past MSI a wafer XXXX, know, contracts MSI the expect growers simply of you in is flat few because, I misleading

based inventory. our we've down truly really wafer what is customers was, assess as do we their infer wafer instead and the primary what driver you been to in levels rates can our levels working really So which starts, know, And been And have to business. starts on trying QX. inventory for utilization of is starts wafer

that in expect the to continue as the be second case well. quarter to We

start to at levels we reason utilization inventory sound at exit expect the increasing we and We levels be will our after of believe most as QX, customers. that why really that's rates

Patrick Ho

the gross quite I soft bit as levers you for the the Great. were question despite a well, just line? of at the Can are? Maybe and of in revenues. give ability mean margins despite flexible us keep terms I on did revenue. a execute you key came execution, terms in follow-up I of relatively color in the industry lower little environment at leverage make, moves the to the getting XX% gross Or OpEx additional are line levels? guess, Are more these and, more margin necessary elevated operating moves guess, you the on lower to Greg, margins

Greg Graves

Yes. Hi, Patrick.

margin would execute well line, we I just say say I So to the continue gross is, things. One it on I've the on operation/manufacturing, quite X said and before. would

and better mature to get continue We an there. organization as

very managing side. slow we'd lot well. surprises is to It And to their that to on time costs be, team a see time, so We as op variable things that today. down, the less used from see

discipline So I the chain a the OpEx, the house consistency regard would quarter, more gross margin I we the softness we lot our organizations. With just more side supply as saw of coming. model. to specifically the came lot and a say into mean of on target to committed some and We're and manufacturing making

we So quarter. had just people could. sort severance belts to in we trimmed we tighten where a million and I of of their ask noted dollars that to the couple really we

QX. talked So good expense in result that We part part did in approximately make quarter that savings million. see annualized some of QX. for $X we of of control the We with will about reductions saw that headcount we in the

Operator

take Sachs. from from next question Goldman We'll our Toshiya Hari

Toshiya Hari

A decline acquisition. year-over-year on a business sequential basis? you business I Or say further provide overall the in CapEx know fair it MC business a there's is more questions. -- within as couple CapEx. little tied is your could the We half to in post CapEx part And well, a bit a of Bertrand, had view? AMH, component, especially meaningful was has your SAES think, troughed? your of But into in I business. was hoping CapEx or I your QX significant on the is how what's and downside second there to meaningful QX that color

Bertrand Loy

as same QX. CapEx was XX-XX in unit the the ratio last ratio was So, essentially That quarter.

So in in X% that unit for to words, other was same X% the the about CapEx range us. decline or in

to is with to especially way pleased taking context of we performance about our business, CapEx the think And think the have in advanced fab about CapEx. it really decline investment. the that nice been otherwise of is, very we it logic are industry-wide declining in the and to into was obviously memory, a on way industry a new of So advanced overall, that, and number projects share a offset the

So the steadiness this to continues examples year-on-year which business, be year. purification that grow, of that expect to our and we business of grow would gas actually

are that be success which residing handling of those sequentially, Another grew business, memory products standards would becoming a AMH is actually unit and logic advanced in the and example of our That fluid increasingly the our business fabs. advanced for industry platform. business continued

fabs temperatures And applications. those So new very subfabs actually fabs tubes fabs up and withstand and those chemistries. require that those we've for harsh and higher very pure and share picking been can

that the sell So wafer industry the so of the products that so fab And solutions, dispense as those liquid with an filters, sequentially makers, the gas part expect, business flow actually equipment controllers, our we equipment. the experienced you down would products product on-tool that well. pumps, line were decline lines we as to of in in sales like behaved

Toshiya Hari

terms half. in finally, on the the quarter of benefits the Is driven the you with uptick apologize SCEM? kind segments, there think tracking synergies about materializing Great. plan? then synergies of was And of had in if I within third What's remarks, And some some AMH, of sequential prepared there? of MC, Can forward this about margin for then post you I missed but Or SAES of a track? -- and some margins Are the that? talked restructuring some operating the you to I you the more ahead of are go the of come back And the individual declines. then in SCEM, consecutive that? for your what's nice talk margins. Greg, on

Greg Graves

Yes.

SCEM. with start let's So

pointed sequentially down you then pretty down again. As year-over-year significantly and out,

So really going quarter a the couple X on. in is of things things. One you had

You mix. had a relatively weak product

that heavily that perspective then -- We in areas absorb capacity pay that have high it, well costs. have business graphite. very we're as but we've those the invested for level And abnormally impacting deposition to depreciate i.e., in thing -- not volumes X logistics from is, materials, the is increased materials to as a trend capacity And higher the and the to starting that. engineered

at is that a point. So laden little capacity business this bit

me, sequentially, cost So, SCEM help business materials, both a expect absorption in performance. lots out, materials things done in pointed we've it expect the pretty sense margin the around. you they I'll in where call of in the which we -- product improvement to had AMH, business as we That we excuse favorable engineering perspective, mix/pricing, a do margins have move impact. in cases, structure made via a deposition should -- up overall a the the we relatively and change. which of -- is volumes through good year. improve From number a as

had the capital said year perspective. we the a improve that driven lumpiness terms synergies, margins bias, from say, So -- the lumpiest more upward move by a MC, to quality we started that continues the some backlog business business of we in and of I from -- expect the do year then to because ago as primarily We improvement And we of cycle. backlog head have base. if be the should realize how margin feel the be I but feel expect about overall, capital trends? the would see through frankly, a nature -- we there margin the in of today than in as I the we to I a better to we of until I forward improvements an business But have it. our it go

Toshiya Hari

if it. one Okay, I could. And question, got housekeeping then

EBITDA full potential and of are assuming and QX DSC, for revenue contribution year? the For sort what you

Greg Graves

is this business The of single million million. So I'll is, magnitude contribution $XX to order digit. year EBITDA just say, $XX low that

said it's this year. earnings So neutral we essentially

get out, range. As And next of kind into move will accretion levels see year. and it we XXXX XXXX, we it the as start $X.XX will to accretive be in

Bertrand Loy

I to for I grow at that next to this CAGR years. add XX% margins that as SCEM EBITDA If say in XX% Greg could with to to mentioned, Yes. expect the line a expect is X pretty would business And become much the margins. we we

contributor a stretch. not by nicely as to you get business But year the that any late of So into meaningful very will this XXXX, to XXXX, show contribution the actually P&L. start

Operator

next question Bank. take Misra We'll Paretosh Berenberg our from from

Paretosh Misra

first Great. units you My question driven. mix, is CapEx versus on the driven

currently? So unit-driven more pleased your are towards to with use to move the Or a where business? maybe M&A, is bit comes when M&A you mix it could you it

Bertrand Loy

mean, CapEx behaving very I business, was equipment But I mean Yes. we a recall, this your acquired that selection. year. acquired necessarily last for a that not not business SAES high-quality we that's for really CapEx the the business criteria business instance, major would. a way pure is when usual

again, it's a not so So criteria selection. for necessarily

I I in of I pipeline. M&A see forward the mostly and that, said all if think I pipeline, unit-driven businesses at our look indeed, if look

front, more the ratio So units M&A you assuming towards should to success going that expect on forward. trend

Paretosh Misra

if remind due me have you one, issues, tariffs? impact you trade other very clear. second XXXX are any it, could if impacted from U.S.-China to by you dollar words Got given just the please how -- -- and for have you then And in

Bertrand Loy

Right.

behind impact And China tariff $X as that. annually. to is have cited now which relatively gave tensions significantly U.S. always actual have the below are experience few an actually the range we actually, that of we our than that us, a actual is So the And quarters of we numbers million immaterial confirming less impact externally, the business.

Operator

We'll take Capital Schwab from Group. our next Christian question Craig-Hallum from

Christian Schwab

you half to half node the an said in memory the to and you well the is I first at from last only seems and regarding position being MSI you you you're out. that greater guys transitions that the will which XX driven look then last in be XX, up guys and wafer it outgrow XX, modestly quarter, was well? just X the when believe understand it want than node company about Or improvement be transitions, NAND front-end talked at Is thought seeing as by flatten as today. quarter, logic, you level the there market reported when the being it and the in due foundry memory taken we've But still update to we from weakness second CapEx as to mid- second as still anything half? changed to that that high-teens. will XXXX, down accurate I the

Bertrand Loy

Yes.

said access So, mean, think Christian, I Having are suggesting X% say that's I $X.X starts that to to we wafer own the and I that digits, down flat that to capitalized down believe rates. we very for your of of end to We new in the get graphite year. capitalized capacity. new we there? we X%, in the capitalized number, do that's of to transitions, revenue in utilization the to we XXXX. on but And what XXXX in industry that, predict guidance back you, you're and us for memory billion, be to guidance MSI, X% and the in node on how this indeed. but CapEx Wafer mid-teens. logic And is in to Well, opportunity not we get And model. if be improving question. environment down our difficult that that's what annual in expect expect a want on we our resilience would deconstruct the that low be do I that's single demonstrate saying will a great we both And our how organic starts,

QX. mentioning, was invested come online going is in Greg That As lot to have capacity. the at of new end capacity we a

to million end and a year. we capacity impact positive $X from so see should is $X in impact of we nice quarterly that expect QX, totally to the back pickup but permitted, million no So there. already a the I mean,

organic performance that that the had effect is year. business of then the recent top the France in acquisition and of -- additional you? the help last we of divestiture cleaning really So that the net revenue minus Does on

Operator

take last Capital we'll from Kapsch And Chris question Markets. Loop our from

Chris Kapsch

a 'XX in narrative had just strength trends but guess, markets you sort question now end that and have just and And what's geographic over specifically, memory the the balance could your you mix guess, in visibility? I Taiwan on, I see about playing with on around foundry, logic of you driving to the Korea of that consistent , the the and your Slide as elaborate Japan, X. clearly, depicted softness out is I in extent

Bertrand Loy

Yes.

we in decline business. from suffered Japan, our So OEM continuous

to the Japan And sales our of the we down in equipment fab operate makers negative to also at led utilization then levels from environment economic Japan some low of saw fairly that customers soft sequentially. in significantly, Japan. in impact So most was

So decline that's sequential a X% Japan. in decline, of why we saw about a

Bill Seymour

again joining think have day. I call, the all a call, for you Thank that's for the operator. and great

Operator

you participation. And that presentation. today's for your concludes Thank

You may disconnect. now

Entegris (ENTG) 27 Apr 192019 Q1 Earnings call transcript