Entegris, Inc.

Welcome to the Integris Second Quarter 2023 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. So others can hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance during today's call, please press star zero. I would now like to turn the call over to Bill Seymour, Vice President of Investor Relations.

Good morning, everyone. Earlier today, we announced the financial results for our second quarter of 2023. 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 in 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. On the call today are Bertrand Lawa, our CEO, and Linda LaGorga, our CFO. With that, I'll hand the call over to Bertrand.

Thank you, Bill. Good morning to all, and welcome again, Linda, to the Integris team. I will start by saying that I am pleased with our solid execution in the second quarter, especially in light of the dynamic industry environment. During the quarter, we delivered strong results within or above our guidance. Sales were $901 million, EBITDA margins were over 27%, and non-GAAP EPS were 66 cents. Let me make a few additional comments on our financial performance. Sales were down sequentially as expected, but we did see growth in product lines that are of increasing importance to our customers' technology roadmaps. These include liquid filtration and etching chemistries, which also explained the relative strength in our MC and SEM divisions in the second quarter. Meanwhile, performance was mixed, but in line with our expectations in our CAPEX-driven solutions. While we saw a contraction in sales of FOOPS and gas filters, consistent with the decline in WFE, we did see steady demand for our fluid handling and gas purifications solutions in line with the level of new fab construction activity, which so far this year remains resilient. In terms of profitability, we continued to execute well and performed in line with our expectations. Next, I would like to highlight a few important items that the team is focused on. First, on the CMC integration. One of the guiding principles of the integration is the fast and effective migration to a common ERP system. To that end, we have already completed three major ERP transitions in the past 12 months, and I don't want to jinx it, but we expect to complete the final go-live migration in just a few days. A major accomplishment for the team, certainly an accomplishment that puts us on track to achieve our $75 million of rent rate cost synergy target by the fourth quarter. As you know, debt pay down is a high priority for us and divestitures of non-core assets are a significant lever we are using to reduce our debt. So far this year, we have entered into definitive agreements for the sale of three businesses totaling more than $1 billion in proceeds. Two of these businesses were part of CMC Materials. The first of those was QED, which closed in March with $135 million in proceeds. The second was the sale of electronic chemicals, which we announced on May 10th for $700 million in proceeds. We have already received regulatory approval for the EEC transaction in several jurisdictions, including the US. And just as a reminder, we do not need the regulatory approval in China for this transaction. We are currently waiting for a few final regulatory approvals and continue to expect the EC transaction will close by the end of this year. And on March, on June 5th, we announced the termination of our distribution agreement for copper plating chemistries with Element Solutions in exchange for $200 million. We received 170 million at the time of announcement and expect to receive the balance no later than this once customer transitions are completed. We have used all of the proceeds received from the QED and element transactions for debt pay down and the $700 million of proceeds from the EC sale when realized are also expected to be used to pay down debt. That brings us to one more potential divestiture PIM which sells drag reducing agents for the oil and gas industry and which also was a part of CMC materials. The PIM business has performed very well so far this year and we do intend to sell this business. We will provide an update on this when we have more to communicate. Another important update I would like to share is that we will be combining the SEM and APS divisions starting next month. The SEM and APS businesses are highly complementary. They are both unit-driven and the majority of what they sell are specialty materials that are consumed in the manufacturing of semiconductors. Our customers will benefit from a more robust end-to-end solution set critical to their roadmaps a solution set that reduces their time to yield and provides superior cost of ownership. Frankly, we considered doing this immediately at the close of the CMC transaction, but we did not have a definitive line of sight to the divestitures we were contemplating. Now that those divestitures are done or solidly in the works, combining the two divisions into one will enhance its size, scale, and focus. And as we always do, we continue to look at our cost structure and align it with the current industry environment. To that end, we would expect our total headcount to be down approximately 5% this year, even net off new hires in our new facility in Taiwan. While it is critical we get our cost structure where it needs to be in the short term, it is equally critical we get ready when the industry ultimately returns to growth. To that end, the capacity expansions in Taiwan and Colorado Springs are vital for us to fully realize our long-term growth potential. Our facility in Taiwan is expected to begin initial shipments later this year and Colorado Springs will begin shipments in early 2025. In addition, We are also using this downturn to our advantage, spending valuable time collaborating with our customers while making elevated levels of R&D spending to support our promising R&D pipeline. Looking at the rest of 2023, for the full year, we continue to expect the market will be down in the mid-teens. And given our strong position in the new technology nodes, we also continue to expect to outperform the market by at least six points. Putting it all together, we continue to expect our pro forma sales in 2023 to be down approximately 8%. We also continue to expect EBITDA will be approximately 27 to 28% of revenue for the year. And we are increasing our full year 2023 non-GAAP EPS expectation to greater than $2.50 per share. While our expectations for industry recovery in the second half of this year are modest, we are extremely optimistic about the long-term secular growth of the semiconductor industry on the way to $1 trillion by 2030. The growth is being driven by overall demand for both logic and memory chips and the many end markets that will drive that growth, including the much-discussed emergence of AI and, of course, power electronics and high-performance computing, to name just a few. In addition to that, device architectures like gate-all-around and higher-layer-count structures are becoming much more complex, trends which ultimately play to our strength. These trends and Integrasys' breadth of capabilities in materials science and materials purity are expected to translate into rapidly expanding content per wafer and market share growth for Integris. Finally, I want to take a moment to thank our customers for the trust and confidence they place in Integris, and I would like to thank the Integris team for their dedication and strong execution as we navigate this dynamic industry environment. Let me turn the call to Linda. Linda?