Entegris, Inc.

Good day, everyone, and welcome to the Integris Q4 2022 earnings release call. Today's call is being recorded, and at this time, for opening remarks and introductions, I would like to turn the call over to Bill Seymour, Integris' VP of Investor Relations. Please go ahead, sir.

Good morning, everyone. Earlier today, we announced the financial results for our fourth quarter and full year of 2022. Before we begin, I would like to remind listeners that our comments today will include some forward-looking statements. These statements involve a number of risks and uncertainties, and actual results could differ materially from those projected in the forward-looking statements. Additional information regarding these risks and uncertainties is contained in our most recent annual report and subsequent quarterly reports that we have filed with the SEC. Please refer to the information on the disclaimer slide in the presentation. On this call, we will also refer to non-GAAP financial measures as defined by the SEC and Regulation G. You can find a reconciliation table in today's news release as well as on our IR page of our website at integris.com. To help you in your modeling, we have provided in our earnings slides a pro forma P&L for all the quarters and full year of 2022. On the call today are Bertrand Delat, our CEO, and Greg Graves, our CFO. With that, I'll hand the call over to Bertrand.

Thank you, Bill. Good morning to all. I would start by saying that our results in the fourth quarter were solid, especially in light of the recent decline in the semi-market. For the quarter, on a pro forma basis, sales were within our guidance, up 1% year-on-year and down 5% sequentially. On a recorded basis, sales were up 49% year-on-year. EBITDA margins were 28% in the quarter, and non-GAAP EPS was 83 cents. Looking at the full year 2022, pro forma sales of $3.9 billion were up 13%, and EBITDA exceeded 29% of sales. We estimate our sales growth was approximately 800 basis points above-the-market growth for the year on a pro-forma basis. This above-market growth was driven in large part by a strong position at the leading edge technology nodes, led by solutions like liquid filtration, selective edge, gas purification systems, and advanced deposition materials, solutions which are of growing importance to our customers' technology roadmap. Other highlights of 2022 included the announcement of the strategic collaboration with Land Research to develop dry photo resist for EUV lithography to be used in the production of next-generation logic and DRAM semiconductors. Another was the very good progress made in the construction of our new manufacturing facility in Taiwan, which is expected to start initial production by the end of the third quarter of this year. And in December, we announced plans to build a new manufacturing center in Colorado Springs, which is targeted to begin initial commercial operations in the second half of 2024. Moving on to an update on the CMT integration, we've been making excellent progress on many critical fronts. We are on track to deliver the 75 million run rate cost synergy target by the second half of this year. The major milestone for this will be the migration to a common ERP platform, which is to be completed this summer. I am also pleased to report that the first of our ERP conversions was successfully completed earlier this month. And for the revenue synergies, we have a dedicated team in place focused on driving plans for the realization of these synergies. Our customers see the value in our unique capabilities in and around the CMP module, which we believe will translate into improved process performance and faster time to solutions for these customers, and ultimately, higher share for integrity. Next, on the planned divestitures tied to the CMP materials portfolio, we terminated the PIN transaction effective February 10th. Given the current regulatory environment, we were concerned about the protracted regulatory process and uncertainty around closing the deal. And you also saw a few weeks ago the announcement of the sale of QED technologies. QED's annual revenue is around $35 million, with EBITDA of $13 million, and the purchase price is approximately $135 million. This transaction is expected to close this quarter. Looking ahead to 2023, frankly, forecasting the industry this year is challenging. There still is a lot of uncertainty about how this year will play out, particularly regarding the shape and magnitude of the downturn in the semiconductor industry. To start, for the full year of 2023, relying largely on discussions with our customers and using third-party estimates, we expect the market, based on our combination of our units and capex mix, to be down approximately 13%. While visibility is limited, we currently expect that the industry will bottom in the second quarter of the year. As I think about 2023, there are three factors that we believe will play in our favor. First, as it relates to the industry, we are much more exposed to logic than memory. Second, of the 20% of our sales that is linked to CapEx, a significant portion of that is for fab construction, which is currently looking more resilient compared to WFE. And third, new logic and memory node transitions appear to be largely on track for this year. And given our strong position and wins in these nodes, we expect to outperform the market on a pro forma basis by approximately five points, which is at the high end of the three to six points outperformance target we discussed in our recent Energy Day. Finally, as you recall, our fourth quarter guidance included a $40 to $50 million impact from the U.S. government's new export controls in China. The actual impact in the fourth quarter was closer to $40 million. And we expect that our sales will continue to be impacted in 2023 by these restrictions, but to a significantly lesser degree, at approximately $20 million per quarter. The impact of these restrictions is already factored into our expectations for 2023. Putting it all together, We expect our sales in 2023 to be down percentage-wise in the high single digits on a pro forma basis. Wrapping our outlook for 2023, we expect EBITDA to be approximately 27% to 28% of revenue. Given the challenging industry backdrop, you can expect us to manage our business dynamically this year, keeping a close eye on costs. As an organization, we will be giving priority to cash flow and debt repayment in 2023. In fact, we have made improving inventory levels a compensable target for the entire company this year. While this will be a challenging year for the industry, the positive secular growth drivers of our business remain intact. The semiconductor industry is poised for long-term growth, on the way to doubling in size to $1 trillion by 2030. In addition, the pace of new transitions for both logic and memory continues to be strong, and device architectures are becoming much more complex. And with the acquisition of CMC, Integrasys' breadth of capabilities in material science and contamination control will enable us to offer unique solutions to help our customers improve device performance and shorten their time to years. These trends and our increasingly mission-critical solutions are translating into rapidly expanding content per wafer and market share growth for integrals. In addition, with approximately 80% of our revenue now unit-driven, we expect our platform will prove to be resilient relative to other industry participants. As we close what was a challenging yet gratifying year, I want to take a moment to thank our customers for the trust and confidence they placed in Integris. And I would like also to thank the Integris teams around the world for their incredible commitment and grit, delivering quality performance while navigating a dynamic industry environment, complex supply chain challenges, and the fast-paced integration of CNC. hand over to Greg. I want to congratulate him on his upcoming retirement and thank him for his immense contributions to Integris over the last two decades. In his 17 years as CFO, Greg has been a staunch advocate for shareholders and a great partner to me. We have grown this company into what it is today. So now let's turn the call to Greg.