Entegris Management Discusses Q2 2012 Results - Earnings Call Transcript

Entegris (ENTG)

Q2 2012 Earnings Call

July 19, 2012 10:00 am ET


Steve Cantor - Former Vice President of Corporate Relations

Gideon Argov - Chief Executive Officer, President and Director

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

Bertrand Loy - Chief Operating Officer and Executive Vice President


Arnold Ursaner - CJS Securities, Inc.

Terence R. Whalen - Citigroup Inc, Research Division

Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division

Krish Sankar - BofA Merrill Lynch, Research Division

Richard A. Ryan - Dougherty & Company LLC, Research Division

Jairam Nathan - Sidoti & Company, LLC

Christian D. Schwab - Craig-Hallum Capital Group LLC, Research Division

Steven Schwartz - First Analysis Securities Corporation, Research Division

Avinash Kant - D.A. Davidson & Co., Research Division



Good day, everyone, and welcome to the Entegris Second Quarter 2012 Earnings Release Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Steve Cantor, Vice President of Corporate Relations. Please go ahead.

Steve Cantor

Good morning, and thank you for joining our call. Earlier today, we announced the financial results for our second quarter ended June 30, 2012. You can access the copy of our press release on our website, www.entegris.com.

Before we begin today, I would like to remind listeners that our comments 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 the reconciliation table on the 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. And with that, Gideon will now begin the call.

Gideon Argov

Thank you, Steve. Good morning, and thank you for joining the call. We're pleased with our second quarter results, which reflected good performance across the company. Sales increased 7% sequentially to $188 million in the second quarter. We grew our adjusted operating margin to 18.1% and recorded cash earnings per share of $0.16, while generating $43 million in cash from operations. And we continue to get traction with a number of new products that are proving to be critical for the industry to implement next-generation technologies, including 28-nanometer processes.

Broadly speaking, the trends through the second quarter were favorable as demand remains strong, particularly from the leading device makers for their advanced production lines. Fab utilization at the leading edge remained high in the second quarter and capital spending, stable.

Looking at our revenue trends during the quarter, our unit to CapEx mix of sales was 66% unit driven and 34% capital driven, a slight shift to the unit-driven side. Our unit-driven sales were up 8%, boosted by record quarter for our liquid filtration products and higher sales of wafer shippers. Sales of other unit-driven products such as our electrostatic chucks for both semiconductor and solar ion implant tools also reached a record. CapEx-related sales grew 7% due to higher demand for fluid-handling components and photochemical pumps for new tools and fab construction projects.

Looking at our business by market, our semiconductor-related sales represented 75% of the total and increased 9% from the first quarter. Outside the SEMI market, the trends were not uniform. Our non-SEMI sales increased 2%. In the markets that account for most of these non-SEMI sales, stronger demand for flat panel display and data storage contrasted with weakness in some of our industrial markets. Nevertheless, we were encouraged by performance in several and new applications that have been the focus of our investment including LED, solar and energy storage. While still small in number, sales in these emerging markets and aggregate grew slightly despite the continued depressed environment for both LED, as well as solar PV.

After a strong first half of 2012, the signals from the industry thus far into the third quarter are somewhat mixed. The macroeconomic conditions around the world are uneven, and in some cases, challenging. In our semiconductor markets, while trends appear to remain strong at the advanced nodes, we are seeing moderating trends for 32-nanometer and older legacy node IC production on the part of some of our customers. Notwithstanding the near-term uncertainty, we're confident and optimistic about our prospects.

Last week, 2 of the industry's leading companies announced a major investment agreement, which is expected to accelerate the development of 450-millimeter wafer production capability as well as EUV. We view this as a long-term positive for Entegris, which clearly affirms the industry's path toward these critical next-generation technologies. In order to understand the significance of 450-millimeter and EUV technology to Entegris, it is helpful to focus on both the direct and indirect ways in which these developments are tied to our own investments.

During a recent analyst day, we announced that we will continue to pursue investments targeting 3 of the fastest-growing and most critical areas of the semiconductor fab: lithography, wet etch and clean and CMP. These investments are designed to ensure that Entegris will continue to grow faster than our industry and remain relevant, vibrant and indispensable to our customers for many years. To be sure, we are directly exposed to both 450-millimeter and EUV to our early investments in FOUP and multi-application carrier shippers for 450-millimeter shippers. These products are already being used by many OEMs and device makers to move test and development wafers through their new tools. In the case of EUV, several Entegris technologies are represented in the form of radical parts, high-performance coatings and unique filtration products. As important however, is the fact that 450-millimeter wafers will make their first significant inroads into fabs at the 1x node. In other words, the first production 450-millimeter wafers will be used to produce devices with circuit linewidth of less than 20 nanometers. The industry's adoption of a larger wafer size not only presents a number of unique technological challenges that will compound further the challenges of achieving the levels of purity in the fab process and materials required at these advanced 1x nodes.

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