Entegris, Inc.

Welcome to the Integris Third 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 your questions following the presentation. If you would like to ask a question at that time, please press star and 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 could hear your questions clearly, we ask that you pick up your handset for best audio quality. Lastly, if you should require operator assistance, please press star and 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 third 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 and Regulation G. You can find a reconciliation table in today's news release as well as on our IR page, our website, and integris.com. On the call today are Bertrand Leroy, our CEO, and Linda LaGorga, our CFO. With that, I'll hand the call over to Bertrand.

Thank you, Bill, and good morning. I will start by saying that I am pleased with another quarter of solid performance. In an industry environment that continues to be challenging, the Integris team delivered results that were in line or better than our guidance, and we made good progress on all our key commitments. First, on our financial performance, sales were $888 million, and EBITDA margin was 26.5%. both squarely at the midpoint of our guidance range. Non-GAAP EPS was 68 cents exceeding our guidance range. Let me make a few additional comments on our sales performance. Sales were down 1% sequentially in line with our guidance. The drivers of that decline were similar to last quarter. For our unit-driven products, sales were down across most product areas as utilization rates in both logic and memory continued to bump along the bottom. However, we did see growth in product lines that are of increasing importance to our customers' technology roadmaps. In particular, we saw growth in advanced deposition materials and wet and clean liquid filters. In addition, we had another strong quarter in SIC slurries and pads, reflecting the growth of that industry segment in our strong market position. In addition, like last quarter, our performance was mixed in our capex-driven solutions. Sales were down for our FOOPS and other products tied to WFE, in contrast to the steady demand for our gas purification systems and sensing and control products, which are tied to new fab construction. Next, I would like to provide an update on the key commitments the team is focused on. First, on the CMC integration. We wrapped up all the ERP conversion on time in August, and we are on track to achieve the 75 million run rate cost synergy target this quarter. We executed four ERP conversions within 13 months of the closing of the CMC acquisition. This is a major accomplishment for the team and a testament to our integration capabilities. Having the whole company on one common ERP platform will allow us to better serve our customers with streamlined end-to-end supply chain and operational capabilities. On the revenue synergies, we have seen early wins in combining products in the CMP module, including slurries, pads, formulated cleans, and filters. Looking further out, there's growing interest from our customers in our end-to-end solutions and our ability to co-develop solutions to support the adoption of materials like molybdenum and other precursors. Our customers see great benefits in integrated solutions as they enable faster development times and improve speed to yield, which ultimately for them means faster time to market. Next, divestitures and pay down. Here, we have made significant progress on our commitments. On October 2nd, we closed the sale of our electronic chemicals business to Fujifilm. Regarding the termination of our distribution agreement with Element Solutions, the deal is largely wrapped up and customer transitions are almost complete. We expect to receive the balance of the proceeds for this transaction by the end of the year. Finally, on the PIM business, which sells drag reducing agents for the oil and gas industry, as we mentioned last quarter, we are working on the sale of the PIM business. The sale process remains ongoing, and we will update you when we have more to share. Summing it up, so far this year, we have sold three businesses, not including the PIM business. And we are using the $1 billion in proceeds from those sales to significantly bring down our debt, just as we said we would. In addition, as you will hear from Linda, these transactions are driving both gross margin and EPS accretion. Lastly, as we discussed, we are focused on improving our free cash flow and specifically inventory turns. We saw very good improvement in inventory reductions in the third quarter, which put a bit of pressure on gross margin but contributed to improving cash flow for the quarter. Linda will also discuss this in more detail shortly. Let me now cover a few other important items before moving on to the outlook. First, on our new facility in Taiwan, as planned, we have begun initial shipments from the Kaohsiung facility. These volumes remain very small. but reflect the steady progress our local team is making. We continue to expect to ramp to higher volumes of production during the second half of 2024. Our new capacity and new facility in Taiwan is critical to addressing our long-term needs. Last quarter, we shared that we were combining the SCM and APS divisions starting in the third quarter. This combination has been completed. The new division is called Material Solutions. Material Solutions will provide our customers the opportunity to leverage our end-to-end capabilities, which we believe will accelerate their roadmaps by reducing their time to yield and by providing better device performance and superior cost of ownership. I believe that this division has tremendous opportunity for growth and margin expansion. Last week, we submitted an application for CHIPS Act funding for our new Colorado Springs facility, which we originally announced in December 2022. We believe that this project is clearly in line with the goals of the Department of Commerce to strengthen the domestic semiconductor ecosystem and improve the resiliency of the domestic supply chain. We look forward to continuing our engagement with the CHIPS program office on our project. Turning to the recently released export controls for China, we do not expect to see any new material direct impact to our business. Next, a few updates on our corporate social responsibility program. In the next few weeks, we will be publishing our latest CSR report We are proud of the progress we have made since launching our program in 2020, but we also know we can do even more. Integris recognizes climate change is a critical issue for the world at large and our communities. On that note, I am pleased to announce that one of the new goals we are introducing is the commitment to reduce our Scope 1 and Scope 2 greenhouse gas emissions by 42%. In addition, we are pleased that Integris was recently awarded the Gold Sustainability Rating from EcoVedas, which puts us in the top 3% of all companies, demonstrating our strong commitment to corporate social responsibility, our colleagues, and our corporate values. Now, looking at the rest of 2023, little has changed in our view of the market. We believe The industry, both for logic and memory, has likely reached the bottom in terms of utilization rates. However, we do not expect any meaningful improvement in the market in the short term. As it pertains to Integris, given our strong market position, we continue to expect to outperform the market by at least six points in 2023. the challenging short-term market conditions, we remain very optimistic about the long-term growth prospects for the semiconductor industry and for Integris. The market will return to growth on the way to doubling in size to $1 trillion. At the same time, the industry is entering a period of unprecedented technology change and device complexity, with chips shrinking below 1 nanometer and with the proliferation of 3D structures across most device architectures. This means the industry is moving toward integrous because our value proposition is unique and increasingly important to our customers' roadmaps, especially in the areas of material science, materials purity, and end-to-end solutions that enable faster time to yield. This will ultimately translate into rapidly expanding content per wafer, and superior growth for integrity. Let me now turn the call over to Linda. Linda?