Entegris, Inc (ENTG)

Q2 2010 Earnings Call

July 27, 2010 10:00 am ET


Steve Cantor - VP, Corporate Relations

Gideon Argov - President & CEO

Bertrand Loy - EVP & COO

Greg Graves - EVP & CFO


Krish Sankar - Bank of America Merrill Lynch

Avinash Kant - D.A. Davidson & Co

Timothy Arcuri - Citi

Kelly Anderson - Sidoti & Company

Christian Schwab - Craig-Hallum Capital Group

Steve Schwartz - First Analysis



Good day, everyone, and welcome to the Entegris second quarter 2010 earnings release conference call. Today’s call is being recorded. For opening remarks and introductions, I’d like to turn the call over to Steve Cantor, Vice President of Corporate Relations. Please go ahead.

Steve Cantor

Thank you. Good morning and thank you all for joining our call. Earlier today, we announced the financial results for our second quarter ended July 3rd, 2010. You can access the copy of our press release on our website www.entegris.com.

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 which are outlined in detail in our reports and filings with the SEC. 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 press release as well as on our website.

On the call today are Gideon Argov, President and CEO; Bertrand Loy, Chief Operating Officer and Greg Graves, Chief Financial Officer. Gideon will now begin the call.

Gideon Argov

Thank you, Steve. Good morning and thank you for joining the call. I'll provide an overview of the quarter and then Greg will provide some details on the financial results. There were a number of reasons to be very pleased with our second quarter results. First, sales of a $168 million reflected the sustained robustness of the semiconductor markets and our liquid filter sales exceeded record levels this quarter.

Second, we achieved an adjusted operating margin of 17.8%, which is ahead of our target profit expectations for that revenue level. This operating margin result is approaching the five-year high watermark for the company.

Third, we generated $28 million of cash from operations, which enabled us to completely repay our credit facility in July, well ahead of schedule.

Before providing more details on these points and discussing the near-term business trends, I want to take a moment to provide some context. This March at our Analyst Day, we laid out a clear path for how Entegris can outgrow its markets and how we can realize the operating leverage of the business.

This growth strategy is built on the three pillars. Growth in our core semiconductor markets; our fight-back initiatives to take back share in a few key areas, and expansion into what we call new frontiers or adjacent markets.

All three in aggregate provide us with a path to grow faster than the market. I'll provide a little more color regarding our progress in the second quarter on each of these fronts.

First; we have considerable room to grow in our core semiconductor market by virtue of the increasingly demanding contamination control requirements at leading-edge technology nodes.

The 11 new fab projects around the globe that are currently either underway or in planning stages will operate using advanced 45, 32 and sub-22-nanometer processes. The wet etch and clean applications at these nodes, our 20-nanometer and 15-nanometer filters are gaining traction and are helping to prevent contamination particles that are so small in some cases they are difficult to even measure.

For lithography applications there is strong demand for our delivery and filtration products that handle the next generations of photochemicals and resists as well as purification systems for eliminating contamination in and around the lithography bay.

We've been filling the pipeline with an increasing stream of qualifications and design wins that we believe will result in share gain as sales of new generation OEM tools begin to ramp.

In CMP, we're not only growing our served market, but we're taking share in the area of post-CMP cleaning brushes. We've introduced a new line of brushes that use our surface modification technology to provide more effective cleaning for small geometries.

Secondly, we are fighting back in three key areas to claim share of market segments that we did not successfully penetrate over the course of several years. In the 300 mm FOSB wafer shippers and dispense pumps for lithography track tools and in the market for shippers used to transport data storage components. These initiatives reflect the newly-focused efforts we put in place over the past 18 months to grow market share.

In the second quarter, we continued to advance our sales in targeted shipping lanes in the 300 mm FOSB market. In our pump initiative, our two-stage pump is increasingly being viewed by both device makers and OEMs as the most effective solution to a critical defect issue called micro bridging. Our data storage business is now stabilized after being adversely impacted over a number of years due to market consolidation and the emergence of low-cost, Asian competition.

Thirdly, we're taking our technology into adjacent markets such as LED, alternative energy and energy storage and aerospace. These are new opportunities, some of them greenfield but could add very meaningful growth to the company in the foreseeable future.

In some, such as LED we are already getting traction with products like our purification systems. In others, such as graphite products for jet aircraft engines, optics for aerospace and especially specialty-coated products for solar manufacturing, we are laying important groundwork today with key design wins.

Read the rest of this transcript for free on seekingalpha.com

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