Market Overview

Entegris Reports Record Sales and Earnings in Second Quarter of 2018

Share:
  • Second-quarter revenue of $383.1 million grew 16% from prior year
  • GAAP net income per diluted share of $0.38 increased 36% from a
    year ago
  • Non-GAAP net income per diluted share of $0.49 increased 44% from a
    year ago
  • First-half 2018 revenue of $750.2 million grew 16%
  • Completed acquisition of SAES Pure Gas on June 25, 2018

Entegris,
Inc. (NASDAQ:ENTG), a leader in specialty chemicals and advanced
materials solutions for the microelectronics industry, today reported
its financial results for the Company's second quarter ended June 30,
2018.

Second-quarter sales were $383.1 million, an increase of 16% from the
same quarter last year and a 4% increase sequentially. Second-quarter
net income was $54.3 million, or $0.38 per diluted share, which included
$12.0 million of amortization of intangible assets, $6.3 million of
integration costs and transaction expenses associated with the purchase
of SAES Pure Gas, as well as a $0.6 million tax charge related to the
Tax Cuts and Jobs Act. Non-GAAP net income of $69.8 million, or $0.49
per diluted share, represented an increase of 43% and 44%, respectively,
from the second quarter of 2017.

For the first half of fiscal 2018, sales of $750.3 million increased 16%
from the same period a year ago. First-half 2018 net income was $111.9
million, or $0.78 per share, which included amortization of intangible
assets of $23.7 million, $6.3 million of integration costs and
transaction expenses associated with the purchase of SAES Pure Gas, as
well as a $2.1 million tax charge related to the Tax Cuts and Jobs Act.
Non-GAAP net income for the first half of 2018 of $137.9 million, or
$0.96 per diluted share, represented an increase of 54% and 52%,
respectively, from the first half of 2017.

Bertrand Loy, president and chief executive officer, said: "We are very
pleased with our record second-quarter performance and the quality of
our execution. Through the first half of 2018 we grew our sales by 16
percent from a year ago and achieved strong growth across all three
divisions, outpacing our markets and demonstrating the increasing value
of our solutions. Thus far this year we grew our profits faster than
sales by a substantial margin, and generated adjusted EBITDA of $215
million, or 28.7 percent of sales."

Mr. Loy added: "Our conviction in the long-term growth trajectory of the
industry is reaffirmed by continued healthy levels of demand for
semiconductors across a broadening set of end-markets. We believe that
our unique value proposition to solve complex materials and purity
challenges, the diversity of our customer base and our strong balance
sheet will enable us to continue to outpace our markets by taking
advantage of a multitude of growth opportunities across the industry
ecosystem. For the full year 2018, we expect to achieve sales of $1,545
million to $1,570 million, or approximately 16 percent above 2017,
including the additional sales from the acquisition of SAES Pure Gas,
which we completed on June 25, 2018."

           

Quarterly Financial Results Summary

(in thousands, except per share data)

 
GAAP Results    

Q2-2018

   

Q2-2017

   

Q1-2018

Net sales     $383,059     $329,002     $367,199
Operating income     $74,933     $59,090     $78,473
Operating margin     19.6%     18.0%     21.4%
Net income     $54,349     $39,991     $57,562
Diluted earnings per share (EPS)     $0.38     $0.28     $0.40
Non-GAAP Results
Non-GAAP adjusted operating income     $93,473     $73,826     $90,142
Non-GAAP adjusted operating margin     24.4%     22.4%     24.5%
Non-GAAP net income     $69,835     $48,906     $68,015
Non-GAAP EPS     $0.49     $0.34     $0.47
 

Third-Quarter Outlook

For the third quarter ending September 30, 2018, the Company expects
sales of $395 million to $410 million, net income of $52 million to $59
million (excluding integration costs), and net income per diluted share
between $0.36 and $0.41. On a non-GAAP basis, EPS is expected to range
from $0.46 to $0.51 per diluted share, which reflects net income on a
non-GAAP basis in the range of $66 million to $73 million, which is
adjusted for expected amortization expense of approximately $18 million,
or $0.10 per share.

Segment Results

The Company reports its results in the following segments:

Specialty Chemicals and Engineered Materials (SCEM): SCEM
provides high-performance and high-purity process chemistries, gases and
materials, as well as safe and efficient delivery systems to support
semiconductor and other advanced manufacturing processes.

Microcontamination Control (MC): MC solutions purify critical
liquid chemistries and gases used in semiconductor manufacturing
processes and other high-technology industries.

Advanced Materials Handling (AMH): AMH develops solutions to
monitor, protect, transport, and deliver critical liquid chemistries and
substrates for a broad set of applications in the semiconductor industry
and other high-technology industries.

Second-Quarter Results Conference Call Details

Entegris will hold a conference call to discuss its results for the
second quarter on Thursday, July 26, 2018, at 9:00 a.m. Eastern Time.
Participants should dial 800-289-0438 or +1 323-794-2423, referencing
confirmation code 4303185. Participants are asked to dial in 5 to 10
minutes prior to the start of the call. For a replay of the call, please Click
Here
using passcode 4303185. The replay will be available starting
at 12:00 p.m. ET on Thursday, July 26 through September 8 at 12:00 p.m.
ET.

The call can also be accessed live and on-demand from the Entegris
website. Point your web browser to http://investor.entegris.com/events.cfm
and follow the link to the webcast. The on-demand playback will be
available for six weeks after the conclusion of the teleconference.

Management's slide presentation concerning the results for the second
quarter, which may be referred to during the call, will be posted on the investor
relations
section of www.entegris.com Thursday
morning before the call.

ABOUT ENTEGRIS
Entegris is a leader in specialty chemicals
and advanced materials solutions for the microelectronics industry and
other high-tech industries. Entegris is ISO 9001 certified and has
manufacturing, customer service and/or research facilities in the United
States, China, France, Germany, Israel, Japan, Malaysia, Singapore,
South Korea and Taiwan. Additional information can be found at www.entegris.com.

Non-GAAP Information
The Company's condensed consolidated
financial statements are prepared in conformity with accounting
principles generally accepted in the United States (GAAP). Adjusted
EBITDA, Adjusted Gross Profit, Adjusted Segment Profit, and Adjusted
Operating Income together with related measures thereof, and non-GAAP
EPS, are considered "Non-GAAP financial measures" under the rules and
regulations of the Securities and Exchange Commission. The presentation
of this financial information is not intended to be considered in
isolation or as a substitute for, or superior to, the financial
information prepared and presented in accordance with GAAP. The Company
uses these non-GAAP financial measures for financial and operational
decision-making, as a means to evaluate period-to-period comparisons, as
well as comparisons to our competitors' operating results. Management
believes that these non-GAAP financial measures provide meaningful
supplemental information regarding our performance and liquidity by
excluding certain items that may not be indicative of our recurring
business operating results, such as amortization, depreciation and
discrete cash charges that are infrequent in nature. We believe that
both management and investors benefit from referring to these non-GAAP
financial measures in assessing and understanding our results and
performance and when planning, forecasting, and analyzing future
periods. We believe these non-GAAP financial measures are useful to
investors both because (1) they allow for greater transparency with
respect to key metrics used by management in its financial and
operational decision-making and (2) they are used by our institutional
investors and the analyst community to help them analyze our business.
The reconciliations of GAAP Net Income (Loss) to Adjusted Operating
Income and Adjusted EBITDA, and GAAP Net Income (Loss) to Non-GAAP
Earnings per Share are included elsewhere in this release.

Forward-Looking Statements
This press release contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The words "believe," "expect,"
"anticipate," "intends," "estimate," "forecast," "project," "should,"
"may," "will," "would" or the negative thereof and similar expressions
are intended to identify such forward-looking statements. These
forward-looking statements include statements related to future period
guidance; future sales, net income, net income per diluted share,
non-GAAP EPS, non-GAAP net income, expenses and other financial metrics;
our performance relative to our markets; market and technology trends;
the development of new products and the success of their introductions;
Company's capital allocation strategy, which may be modified at any time
for any reason, including share repurchases, dividends, debt repayments
and potential acquisitions; the effect of the Tax Cuts and Jobs Act on
our capital allocation strategy; the impact of the acquisitions we have
made and commercial partnerships we have established; our ability to
execute on our strategies; and other matters. These statements involve
risks and uncertainties, and actual results may differ. These risks and
uncertainties include, but are not limited to, weakening of global
and/or regional economic conditions, generally or specifically in the
semiconductor industry, which could decrease the demand for our products
and solutions; our ability to meet rapid demand shifts; our ability to
continue technological innovation and introduce new products to meet our
customers' rapidly changing requirements; our concentrated customer
base; our ability to identify, effect and integrate acquisitions, joint
ventures or other transactions; our ability to protect and enforce
intellectual property rights; operational, political and legal risks of
our international operations; our dependence on sole source and limited
source suppliers; the increasing complexity of certain manufacturing
processes; raw material shortages and price increases; changes in
government regulations of the countries in which we operate; fluctuation
of currency exchange rates; fluctuations in the market price of
Entegris' stock; the level of, and obligations associated with, our
indebtedness; and other risk factors and additional information
described in our filings with the Securities and Exchange Commission,
including under the heading "Risks Factors" in Item 1A of our Annual
Report on Form 10-K for the fiscal year ended December 31, 2017, filed
on February 15, 2018, and in our other periodic filings. The Company
assumes no obligation to update any forward-looking statements or
information, which speak as of their respective dates.

 

Entegris, Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations

(In thousands,
except per share data)
(Unaudited)

   
Three months ended
June 30, 2018       July 1, 2017       March 31, 2018
Net sales $383,059       $329,002     $367,199
Cost of sales 200,681       178,699       191,202
Gross profit 182,378 150,303 175,997
Selling, general and administrative expenses 65,200 52,985 58,269
Engineering, research and development expenses 30,231 27,221 27,586
Amortization of intangible assets 12,014       11,007       11,669
Operating income 74,933 59,090 78,473
Interest expense, net 6,925 8,103 7,226
Other expense (income), net 3,877       (46 )     139
Income before income tax expense 64,131 51,033 71,108
Income tax expense 9,782       11,042       13,546
Net income $54,349       $39,991       $57,562
 
 
Basic net income per common share: $0.38 $0.28 $0.41
Diluted net income per common share: $0.38 $0.28 $0.40
 
Weighted average shares outstanding:
Basic 141,701 141,696 141,581
Diluted 143,238 143,508 143,652
 

Entegris, Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations

(In thousands,
except per share data)
(Unaudited)

       
Six months ended
June 30, 2018     July 1, 2017
Net sales $750,258 $646,379
Cost of sales 391,883     356,480
Gross profit 358,375 289,899
Selling, general and administrative expenses 123,469 103,477
Engineering, research and development expenses 57,817 54,460
Amortization of intangible assets 23,683     21,952
Operating income 153,406 110,010
Interest expense, net 14,151 16,496
Other expense, net 4,016     856
Income before income tax expense 135,239 92,658
Income tax expense 23,328     20,153
Net income $111,911     $72,505
 
 
Basic net income per common share: $0.79 $0.51
Diluted net income per common share: $0.78 $0.51
 
Weighted average shares outstanding:
Basic 141,641 141,599
Diluted 143,445 143,411
 

Entegris, Inc. and Subsidiaries
Condensed
Consolidated Balance Sheets

(In thousands)
(Unaudited)

       
June 30, 2018     December 31, 2017
ASSETS
Cash and cash equivalents $257,106 $625,408
Accounts receivable, net 200,395 183,434
Inventories 265,358 198,089
Deferred tax charges and refundable income taxes 21,647 18,012
Other current assets 29,720     32,665
Total current assets 774,226 1,057,608
 
Property, plant and equipment, net 380,259 359,523
 
Goodwill 529,933 359,688
Intangible assets 361,429 182,430
Deferred tax assets 10,980 9,103
Other assets 9,281     7,820
Total assets $2,066,108     $1,976,172
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt, current maturities $100,000
Accounts payable 71,895 68,762
Accrued liabilities 113,659 99,374
Income tax payable 18,708     22,835
Total current liabilities 204,262 290,971
 
Long-term debt, excluding current maturities 650,223 574,380
Other liabilities 158,718 117,803
Shareholders' equity 1,052,905     993,018
Total liabilities and shareholders' equity $2,066,108     $1,976,172
 

Entegris, Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows

(In thousands)
(Unaudited)

       
Three months ended     Six months ended
June 30, 2018     July 1, 2017     June 30, 2018     July 1, 2017
Operating activities:        
Net income $54,349 $39,991 $111,911 $72,505
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 15,802 14,411 31,699 28,388
Amortization 12,014 11,007 23,683 21,952
Stock-based compensation expense 4,429 4,039 8,557 7,909
Provision for deferred income taxes (1,036 ) (215 ) (1,757 ) 3,207
Other 3,137 6,497 4,640 10,130
Changes in operating assets and liabilities:
Trade accounts and notes receivable 8,698 4,514 2,687 (3,032 )
Inventories (7,517 ) (8,422 ) (22,472 ) (13,837 )
Accounts payable and accrued liabilities 19,019 10,177 (14,966 ) (13,313 )
Income taxes payable and refundable income taxes (14,207 ) 4,209 (7,515 ) 2,957
Other     3,601       (1,049 )     639       1,725  
Net cash provided by operating activities     98,289       85,159       137,106       118,591  
Investing activities:
Acquisition of property and equipment (26,390 ) (20,000 ) (47,437 ) (42,492 )
Acquisition of businesses, net of cash acquired (342,569 ) (20,302 ) (380,225 ) (20,000 )
Other     1,759       25       1,905       211  
Net cash used in investing activities     (367,200 )     (40,277 )     (425,757 )     (62,281 )
Financing activities:
Payments on long-term debt (2,000 ) (25,000 ) (27,000 ) (50,000 )
Issuance of common stock 2,554 1,864 3,027 2,905
Taxes paid related to net share settlement of equity awards (290 ) (664 ) (14,413 ) (5,239 )
Repurchase and retirement of common stock (10,000 ) (4,000 ) (20,000 ) (8,000 )
Dividend payments (9,919 ) (19,802 )
Other     1,750       (1,000 )     1,504       (1,270 )
Net cash used in financing activities     (17,905 )     (28,800 )     (76,684 )     (61,604 )
Effect of exchange rate changes on cash     (6,314 )     (1,606 )     (2,967 )     4,540  
(Decrease) increase in cash and cash equivalents (293,130 ) 14,476 (368,302 ) (754 )
Cash and cash equivalents at beginning of period     550,236       391,159       625,408       406,389  
Cash and cash equivalents at end of period     $257,106       $405,635       $257,106       $405,635  
 

Entegris, Inc. and Subsidiaries
Segment Information
(In
thousands)
(Unaudited)

                   
Three months ended     Six months ended
Net sales     June 30, 2018     July 1, 2017     March 31, 2018     June 30, 2018     July 1, 2017
Specialty Chemicals and Engineered Materials $134,336 $121,174 $130,743 $265,079 $235,609
Microcontamination Control 124,681 104,407 118,637 243,318 204,462
Advanced Materials Handling 124,042     103,421     117,819     241,861     206,308
Total net sales $383,059     $329,002     $367,199     $750,258     $646,379
 
    Three months ended     Six months ended
Segment profit1     June 30, 2018     July 1, 2017     March 31, 2018     June 30, 2018     July 1, 2017
Specialty Chemicals and Engineered Materials $37,316     $29,060     $31,562     $68,878     $52,188
Microcontamination Control 39,054 31,796 41,991 81,045 62,783
Advanced Materials Handling 23,114     15,169     23,142     46,256     29,129
Total segment profit 99,484 76,025 96,695 196,179 144,100
Amortization of intangibles 12,014 11,007 11,669 23,683 21,952
Unallocated expenses 12,537     5,928     6,553     19,090     12,138
Total operating income $74,933     $59,090     $78,473     $153,406     $110,010

1Beginning in the first quarter of 2018, the Company has
changed its definition of segment profit to include an allocation of
certain general and administrative costs for the Company's human
resources, finance and information technology functions previously
unallocated by the Company. Prior quarter information was recast to
reflect the change in the Company's definition of segment profit.

       

Entegris, Inc. and Subsidiaries
Reconciliation of
GAAP Gross Profit to Adjusted Gross Profit

(In thousands)
(Unaudited)

 
Three months ended Six months ended
      June 30, 2018     July 1, 2017     March 31, 2018

June 30, 2018

    July 1, 2017
Net sales     $383,059       $329,002       $367,199   $750,258       $646,379  
Gross profit-GAAP $182,378     $150,303     $175,997 $358,375     $289,899
Adjustments to gross profit:
Charge for fair value mark-up of acquired inventory sold 208 208
Impairment of equipment       1,966               1,966  
Adjusted gross profit $182,586       $152,269       $175,997   $358,583       $291,865  
 
Gross margin - as a % of net sales 47.6 % 45.7 % 47.9 % 47.8 % 44.8 %
 
Adjusted gross margin - as a % of net sales     47.7 %     46.3 %     47.9 % 47.8 %     45.2 %
 

Entegris, Inc. and Subsidiaries
Reconciliation of
GAAP Segment Profit to Adjusted Operating Income

(In
thousands)
(Unaudited)

       

 

Three months ended     Six months ended
Segment profit-GAAP     June 30, 2018     July 1, 2017     March 31, 2018     June 30, 2018     July 1, 2017
Specialty Chemicals and Engineered Materials $37,316     $29,060     $31,562 $68,878     $52,188
Microcontamination Control 39,054 31,796 41,991 81,045 62,783
Advanced Materials Handling 23,114     15,169     23,142     46,256     29,129
Total segment profit 99,484 76,025 96,695 196,179 144,100
Amortization of intangible assets 12,014 11,007 11,669 23,683 21,952
Unallocated expenses 12,537     5,928     6,553     19,090     12,138
Total operating income $74,933     $59,090     $78,473     $153,406     $110,010
 
    Three months ended     Six months ended
Adjusted segment profit     June 30, 2018     July 1, 2017     March 31, 2018     June 30, 2018     July 1, 2017
Specialty Chemicals and Engineered Materials $37,316     $29,060     $31,562     $68,878     $52,188
Microcontamination Control 1 39,262 33,239 41,991 81,253 64,226
Advanced Materials Handling 2 23,114     17,455     23,142     46,256     31,415
Total adjusted segment profit 99,692 79,754 96,695 196,387 147,829
Amortization of intangible assets3
Unallocated expenses4 6,219     5,928     6,553     12,772     12,138
Total adjusted operating income $93,473     $73,826     $90,142     $183,615     $135,691
 

1 Adjusted segment profit for Microcontamination Control for
the three and six months ended July 1, 2017 excludes charges for
impairment of equipment and severance of $884 and $559, respectively.
Adjusted segment profit for Microcontamination Control for the three and
six months ended June 30, 2018 excludes charges for fair value mark-up
of acquired inventory sold of $208, respectively.
2
Adjusted segment profit for Advanced Material Handling for the three and
six months ended July 1, 2017 excludes charges for impairment of
equipment of $2,286.
3 Adjusted amortization of
intangible assets excludes amortization expense of $12,014, $11,007, and
$11,669 for the three months ended June 30, 2018, July 1, 2017, and
March 31, 2018, respectively and $23,683 and $21,952 for the six months
ended June 30, 2018 and July 1, 2017, respectively.
4
Adjusted unallocated expenses for the three and six months ended June
30, 2018 exclude deal costs and integration expenses of $5,121 and
$1,197, respectively.

       

Entegris, Inc. and Subsidiaries
Reconciliation of
GAAP Net Income to Adjusted Operating Income and Adjusted EBITDA

(In
thousands)
(Unaudited)

 
Three months ended Six months ended
June 30, 2018     July 1, 2017     March 31, 2018 June 30, 2018     July 1, 2017
Net sales $383,059     $329,002     $367,199 $750,258     $646,379
Net income $54,349     $39,991     $57,562 $111,911     $72,505
 
Adjustments to net income:
Income tax expense 9,782 11,042 13,546 23,328 20,153
Interest expense, net 6,925 8,103 7,226 14,151 16,496
Other expense, net 3,877     (46)     139 4,016     856
GAAP - Operating income 74,933 59,090 78,473 153,406 110,010
Charge for fair value write-up of acquired inventory sold 208 208
Deal Costs 5,121 5,121
Integration Costs 1,197 1,197
Severance 559 559
Impairment of equipment 3,170 3,170
Amortization of intangible assets 12,014     11,007     11,669 23,683     21,952
Adjusted operating income 93,473 73,826 90,142 183,615 135,691
Depreciation 15,802     14,411     15,897 31,699     28,388
Adjusted EBITDA $109,275     $88,237     $106,039 $215,314     $164,079
 
Adjusted operating margin 24.4% 22.4% 24.5% 24.5% 21.0%
Adjusted EBITDA - as a % of net sales     28.5%     26.8%     28.9% 28.7%     25.4%
 

Entegris, Inc. and Subsidiaries
Reconciliation of
GAAP Net Income to Non-GAAP Earnings per Share

(In
thousands, except per share data)
(Unaudited)

       
Three months ended Six months ended
      June 30, 2018     July 1, 2017     March 31, 2018 June 30, 2018     July 1, 2017
GAAP net income $54,349     $39,991     $57,562 $111,911     $72,505
Adjustments to net income:
Charge for fair value write-up of acquired inventory sold 208 208
Deal Costs 5,121 5,121
Integration Costs 1,197 1,197
Severance 559 559
Impairment of equipment 3,170 3,170
Amortization of intangible assets 12,014 11,007 11,669 23,683 21,952
Tax effect of adjustments to net income and discrete items1 (3,702 ) (5,821 ) (2,710 ) (6,412 ) (8,526 )
Tax effect of Tax Cuts and Jobs Act 648             $1,494   $2,142        
Non-GAAP net income $69,835       $48,906       $68,015   $137,850       $89,660  
 
Diluted earnings per common share $0.38 $0.28 $0.40 $0.78 $0.51
Effect of adjustments to net income $0.11 $0.06 $0.07 $0.18 $0.12
Diluted non-GAAP earnings per common share     $0.49       $0.34       $0.47   $0.96       $0.63  
 

1The tax effect of pre-tax adjustments to net income was
calculated using the applicable marginal tax rate during the respective
years.

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