Entegris Inc (ENTG) (Q1 2024) Earnings Call Transcript Highlights: Strategic Moves and ...

• Q1 2024 Revenue: $771 million, high end of guidance, down 16% YoY, down 5% sequentially

• Gross Margin: 45.6% in Q1, above guidance

• EBITDA: $223 million in Q1, 29% of revenue, above guidance

• Non-GAAP EPS: $0.68, above guidance

• Net Interest Expense: $54 million in Q1, below guidance of $60 million

• Free Cash Flow: $81 million in Q1

• Debt Paydown: $419 million in Q1, term loan balance now approximately $955 million

• 2024 Sales Forecast: Approximately $3.35 billion

• 2024 EBITDA Forecast: Approximately 29% of revenue

• 2024 Non-GAAP EPS Forecast: Greater than $3.25

• Q2 2024 Revenue Forecast: $790 million to $810 million

• Q2 2024 EBITDA Margin Forecast: Approximately 28%

• Q2 2024 GAAP EPS Forecast: $0.42 to $0.47

• Q2 2024 Non-GAAP EPS Forecast: $0.68 to $0.73

• Warning! GuruFocus has detected 10 Warning Signs with ENTG.

Release Date: May 01, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Entegris Inc (NASDAQ:ENTG) reported Q1 sales of $771 million, at the high end of guidance, with gross margin, EBITDA, and non-GAAP EPS above guidance.

• The company successfully completed the sale of the PIM business, generating proceeds used to significantly pay down debt.

• Entegris Inc (NASDAQ:ENTG) is making steady progress on major investments in new manufacturing capacities in Taiwan and Colorado, expected to boost future revenues.

• The company maintains a strong market position in new logic and memory nodes, expecting to outperform the market by 4 to 5 points this year.

• Entegris Inc (NASDAQ:ENTG) achieved a higher gross margin in Q1 due to improved plant utilization and the PIM divestiture.

Negative Points

• Q1 sales were down 16% year-over-year and 5% sequentially on an as-reported basis, reflecting expected seasonal declines.

• Foreign exchange negatively impacted revenue by approximately $8 million year-over-year.

• The company reported a sequential decline in sales across all major product lines in the MC division.

• Despite overall growth, there was continued weakness in some mainstream end markets impacting the Materials Solutions division.

• The AMH division saw a 4% sequential decline in sales, primarily due to lower sales of fluid-handling products.

Q & A Highlights

Q: Bertrand, can you discuss the industry outlook and how you see wafer starts across different segments like DRAM, NAND, and logic? A: Bertrand Loy - Entegris, Inc. - CEO, President & Chairman: Our industry outlook remains unchanged with an expected 4% growth. We are observing positive trends in advanced logic and DRAM with increasing wafer fab production. 3D NAND is stabilizing and expected to recover gradually in the second half of the year. Mainstream sectors should stabilize later this year after some compression in Q1 and Q2.

Q: Linda, could you provide insights into the factors influencing gross margin and operating expenses for the second half of the year? A: Linda LaGorga - Entegris, Inc. - Senior VP, CFO & Treasurer: For gross margin, volume leverage and product mix could be potential tailwinds, though we face headwinds from KSP. We haven't provided specific full-year gross margin guidance due to these variables. Regarding operating expenses, expect continued investment in R&D at about 9% of revenue, offsetting some SG&A leverage.

Q: Bertrand, how are pricing dynamics evolving, especially as the mix shifts towards leading-edge technologies? A: Bertrand Loy - Entegris, Inc. - CEO, President & Chairman: The pricing trend has been favorable over the past few years. Although the current industry environment doesn't strongly favor price increases, the trend has been more favorable compared to previous years.

Q: Linda, can you discuss the impact of currency fluctuations on the business? A: Linda LaGorga - Entegris, Inc. - Senior VP, CFO & Treasurer: Historically, FX hasn't significantly impacted our business due to a natural hedge between our sales and costs, and because a majority of our sales are in USD. However, rapid changes in the dollar's value can affect margins due to timing differences between product manufacturing and sales.

Q: Bertrand, with the ongoing U.S.-China tensions and potential new restrictions, how do you see this impacting Entegris? A: Bertrand Loy - Entegris, Inc. - CEO, President & Chairman: We are closely monitoring the situation and complying with existing export restrictions, which currently impact our revenue by about $20 million quarterly. Our business in China, primarily in mainstream and international fabs, remains steady.

Q: Can you elaborate on the role of molybdenum in NAND technology and its potential impact on Entegris? A: Bertrand Loy - Entegris, Inc. - CEO, President & Chairman: Molybdenum is emerging as a critical material due to its superior thermal and electrical properties, especially for high layer count architectures in NAND. We are close to seeing process of record decisions in the industry, and Entegris is uniquely positioned to support this transition, which could significantly impact our business in the coming years.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.