- Revenue: $813 million, up 6% year over year and 10% sequentially.
- Gross Margin: Increased over 300 basis points year on year.
- Adjusted EBITDA: $226 million or 27.8% of revenue.
- Non-GAAP EPS: $0.71 per share.
- Operating Expenses (GAAP): $246 million.
- Operating Expenses (Non-GAAP): $197 million.
- Net Interest Expense: $53 million.
- GAAP Tax Rate: 9%.
- Non-GAAP Tax Rate: 14%.
- Free Cash Flow: $52 million.
- CapEx: $59 million for the quarter, expected $350 million for 2024.
- Debt Repayment: $55 million paid down in Q2, $1.9 billion total since CMC acquisition.
- Gross Debt: Approximately $4.2 billion.
- Net Debt: Approximately $3.9 billion.
- Gross Leverage: 4.7 times.
- Net Leverage: 4.3 times.
- Q3 Revenue Guidance: $820 million to $840 million.
- Q3 EBITDA Margin Guidance: 28.5% to 29.5%.
- Q3 GAAP EPS Guidance: $0.51 to $0.56 per share.
- Q3 Non-GAAP EPS Guidance: $0.75 to $0.80 per share.
- Q3 Gross Margin Guidance: 46% to 47%.
- Q3 GAAP Operating Expenses Guidance: $238 million to $242 million.
- Q3 Non-GAAP Operating Expenses Guidance: $191 million to $195 million.
- Q3 Depreciation Guidance: Approximately $47 million.
- Q3 Net Interest Expense Guidance: Approximately $53 million.
- Q3 Non-GAAP Tax Rate Guidance: Approximately 15%.
Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Entegris Inc (ENTG, Financial) reported second-quarter sales of $813 million, which exceeded their guidance.
- Gross margin increased sequentially and was up over 300 basis points year-on-year.
- The company received a preliminary award of up to $75 million under the CHIPS and Science Act for their new manufacturing facility in Colorado.
- Entegris Inc (ENTG) expects to generate approximately $40 million in revenue from their new facility in Cochin, Taiwan for the full year 2024.
- The company is making significant R&D investments, expecting a 15% increase in R&D spending in 2024 to capture growth opportunities.
Negative Points
- Foreign exchange negatively impacted revenue by $10 million year-over-year and by $4 million sequentially in Q2.
- The company revised its annual sales outlook downwards due to a slower-than-expected market recovery and negative foreign exchange impacts.
- Entegris Inc (ENTG) faces a $20 million quarterly revenue loss due to existing trade restrictions with China.
- The company expects a contraction in their mainstream fabs activity due to reduced demand from automotive and industrial applications.
- The EBITDA margin guidance for Q3 is relatively modest, reflecting ongoing market uncertainties and customer-specific production adjustments.
Q & A Highlights
Q: Bertrand, can you expand on the slower market recovery in the second half of the year? Is it both CapEx and wafer starts or more wafer starts?
A: Sure. We are expecting wafer starts to be up about 3%, slightly less than our original assumption. CapEx is expected to be a bit stronger in the mid-term, in the low to mid-single digits. The slower recovery in wafer starts is driven by strengths in advanced logic, primarily AI, and improving trends in memory, though NAND is still suffering from elevated inventories. Mainstream demand, particularly in industrial and automotive, has been declining, leading to production cuts in the second half.
Q: How do you see your rate of outperformance versus the broader market for 2024 and 2025?
A: For 2024, we expect to outperform by four points. Node transitions, which are major drivers for our outperformance, have been limited this year. However, we expect significant changes in 2025 with transitions to advanced logic and gate-all-around architectures, as well as the adoption of Mali in high-volume manufacturing.
Q: Do you see further restrictions on exports to China as a potential risk?
A: While we won't speculate on potential new rules, we have been complying with existing ones, which have impacted our business by about $20 million per quarter. Despite this, our China business has been performing well, particularly with international customers and mainstream fabs.
Q: Can you explain the strong fourth-quarter outlook implied by your full-year guide?
A: The full-year guide remains at approximately 29% EBITDA margin. The stronger fourth-quarter outlook is driven by expected gradual recovery and growth in sales, leading to operating leverage. We are balancing investing in the business with cost control.
Q: What factors are driving the low end and high end of your Q3 guidance?
A: The difficulty in forecasting is due to various segments recovering at different times and rates. The level of reduction in production in mainstream fabs and the gradual recovery in memory wafer starts are key factors. Customer-specific details also play a significant role.
Q: Can you provide more color on your CapEx commentary and the strength in certain areas?
A: We expect WFE to grow in the mid to high single digits, while fab construction remains relatively flat. Our business is more exposed to fab construction, which accounts for about two-thirds of our CapEx revenue.
Q: How should we think about the ramp of your new facilities in Taiwan and Colorado?
A: The focus for our Taiwan facility this year is on product qualifications ahead of the N2 transition next year. We expect the bulk of advanced filters used by our Taiwanese foundry customers to come from Taiwan over time. The Colorado facility will start generating revenue in the second half of the year, with significant growth expected in 2025.
Q: Can you discuss your balance sheet deleveraging process and uses of cash?
A: We are committed to reducing leverage, having paid down $1.9 billion of debt since the CMC acquisition. We will continue to use free cash flow to pay down debt while balancing investments in the business. We expect leverage to be slightly north of 4.0 times this year, with further reductions planned.
Q: Can you provide more color on the sequential margin strength from Q2 to Q3?
A: The margin strength is driven by an uptick in revenue and volume leverage, along with a reduction in operating expenses as a percentage of revenue. We expect continued margin improvement as we progress through Q3 and into Q4.
Q: How should we model the ramp of your new facilities in Taiwan and Colorado?
A: For Taiwan, the focus is on product qualifications this year, with significant revenue expected in 2025. The Colorado facility will start generating revenue in the second half of this year, with a gross margin headwind of about 80 basis points year over year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
