Entegris (ENTG)

Q1 2011 Earnings Call

April 21, 2011 10:00 am ET


Steve Cantor - Vice President of Corporate Relations

Gideon Argov - Chief Executive Officer, President and Director

Bertrand Loy - Chief Operating Officer and Executive Vice President

Gregory Graves - Chief Financial Officer, Executive Vice President and Treasurer


Thomas Claugus

Steven Schwartz - First Analysis Securities Corporation

Wenge Yang - Oppenheimer

Richard Ryan - Dougherty & Company LLC

Christian Schwab - Craig-Hallum Capital Group LLC

Krish Sankar - BofA Merrill Lynch

Avinash Kant - D.A. Davidson & Co.



Good day and welcome to the Entegris First Quarter 2011 Earnings Release Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Steve Cantor, Vice President of Corporate Relations. Please go ahead, sir.

Steve Cantor

Good morning, everyone. Thank you for joining our call. Earlier today, we announced the financial results for our first quarter ended April 2, 2011. You can access a 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 in 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 Gregory Graves, Chief Financial Officer. Gideon will now begin the call.

Gideon Argov

Thank you, Steve, and good morning. Thanks for joining the call. We are very pleased with the results of the first quarter. We achieved record level sales of $203 million, our eighth consecutive quarter of growth. Our adjusted operating margin expanded to nearly 20% in line with our operating model and we have continuing momentum across our business thus far, in the second quarter.

Our semiconductor revenues, which accounted for 74% of total Q1 sales, grew 12% from the fourth quarter of last year. Production across the industry remain high as new fab construction and capital investments in 28-nanometer process manufacturing capability at leading foundries and device manufacturers continued at a solid pace.

We also had good performance in markets adjacent to the semiconductor industry. Sales to these markets grew 10% sequentially and accounted for 26% of our total first quarter sales. This reflected growth in TFT/LCD, as well as high-tech industrial sales and continued steady growth in emerging markets including our Solar business.

However, these numbers don't tell the entire story. Our results this quarter are further evidenced with the growth strategies we've put in place over the past 3 years are producing results.

Our unit-driven sales grew 8% sequentially in the quarter. While industry wafer start data is not yet available for Q1, through the year end of 2010, our sales of unit-driven products to semiconductor customers had grown faster than wafer starts for each of the past 7 quarters, this demonstrates there are strategies to grow market share in a number of product areas such as filtration and 300-millimeter wafers shippers are achieving real share gains.

Our CapEx sales were even stronger, up 17% from the fourth quarter reflecting greater demand for our fluid handling solutions used in new fab construction and new tool installation as well as gas purification systems for advanced lithography applications.

Before providing some comments about the performance of our 3 divisions, I'd like to say a few words about the disaster that shook Japan late in the quarter. We extend our sincere condolences to the people of Japan and especially to the families of the victims of the earthquake and tsunami. We were very fortunate that all of our employees in Japan are safe.

Our offices in Tokyo and our manufacturing operations in Yonezawa, which is located in Yamagata Prefecture, suffered only minor damage. We were able to return to full production just two days after the earthquake and operated at normal production levels since that time. We were only able to do this through the tremendous dedication of our Japanese team and the support of our supply chain partners in Japan, elsewhere around the world.

Our sales through Japanese customers actually grew in the quarter as most Japanese device manufacturers also rebounded quickly. And for the second quarter, we anticipate our sales from Japan to increase at an even greater rate, in part, due to a modest increase in demand for consumables needed to get local fab lines back online.

Looking at the performance across our divisions. Q1 was another great quarter for Contamination Control Solutions or CCS. Sales of $132 million were up 12% sequentially, as the number of products groups exceeded all-time revenue highs. Including sales of liquid filters, fluid handling products, gas purification systems used in a number of process areas including lithography, wet etch & clean and CMP. The CCS division increased its operating margin to 38% in the quarter.

First quarter sales in our Microenvironments or ME division grew 5% to $48 million. Sales of 300-millimeter wafer shippers or FOSBs reached a record quarterly level and customer demand for advanced 300-millimeter FOUP process carriers continued to be strong. We continue to ramp our manufacturing capacity with these exciting new products. Operating income for the ME division was $8 million, 17% operating margin.

And our Specialty Materials division had an outstanding quarter, growing 25% quarter-to-quarter, reflecting the continued rebound in the industrial side of the business as well as strong demand related to ion implant applications. Operating margin of Specialty Materials division improved to 22% in the first quarter.

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