ENTEGRIS, INC. — Q1 2023 Form 10-Q
Reporting period: Three months ended April 1, 2023; comparable period ended April 2, 2022. Entegris supplies advanced materials and process solutions for semiconductor and other high-technology industries. Results include CMC Materials, acquired in July 2022; its reporting period ends March 31.
Financial performance
| Metric | Q1 2023 | Prior comparable quarter |
|---|---|---|
| Net sales | $922.4 million | $649.6 million |
| Gross profit / margin | $401.7 million / 43.5% | $309.8 million / 47.7% |
| Operating income / margin | $13.5 million / 1.5% | $163.3 million / 25.1% |
| Net income (loss) | $(88.2) million | $125.7 million |
| Diluted EPS | $(0.59) | $0.92 |
| Operating cash flow | $151.9 million | $63.8 million |
- Sales rose 42%, primarily from CMC Materials, which contributed $273.8 million to the year-over-year increase. Excluding acquired-business sales, volume added $17.0 million; foreign exchange reduced sales by $18.1 million.
- Gross margin fell 4.2 percentage points, reflecting the acquired portfolio’s lower aggregate margins and $7.4 million of restructuring costs.
- GAAP results included an $88.9 million goodwill impairment, $57.6 million of intangible amortization, $86.1 million of interest expense, and a $13.6 million loss on the QED sale. Income-tax expense was $21.5 million, including approximately $17.0 million related to QED; the goodwill impairment was non-taxable.
- Management-reported non-GAAP adjusted EBITDA was $251.5 million, up 22%, but its margin declined to 27.3% from 31.7%. Adjusted operating income was $204.8 million, up 12%, with margin down to 22.2% from 28.1%. Non-GAAP diluted EPS declined to $0.65 from $1.06. These measures exclude specified charges and are not GAAP measures.
Cash, debt, and liquidity
- Cash, cash equivalents, and restricted cash totaled $709.0 million at quarter-end; working capital was $1.675 billion.
- Debt was $5.925 billion at par, or $5.794 billion net of unamortized discount and issuance costs. Current debt was $159.0 million; the $575 million revolving facility had no borrowings.
- Capital expenditures were $134.0 million. Investing cash flow was a net use of $0.4 million, including $133.5 million of cash proceeds from the QED sale. Financing cash flow was a net use of $6.5 million.
- The company refinanced its $2.495 billion term loan in March; the replacement loan matures in July 2029 and bears interest at Term SOFR plus 2.75% or base rate plus 1.75%, at the company’s option. Entegris said it complied with debt covenants at April 1 and expected existing cash and anticipated operating cash flows to cover needs for the next 12 months and longer term.
Material developments, outlook, and risks
- Electronic Chemicals (EC), within APS, was assessed for impairment in connection with a potential sale. Entegris recorded an $88.9 million goodwill impairment using a Level 3 market-based valuation aligned with an expected sale price of approximately $700 million. On May 10, 2023, it announced a definitive agreement to sell EC to FUJIFILM Holdings America Corporation for $700 million, subject to customary adjustments and closing conditions; closing was expected before year-end 2023, subject to regulatory approval. The company did not expect a material gain or loss.
- The planned sale of PIM to Infineum was terminated in February after regulatory clearance was not obtained. Entegris received a $12.0 million termination fee and recorded net income of $10.9 million after adviser fees. PIM remained classified as held for sale at quarter-end.
- Entegris completed the QED divestiture on March 1 for approximately $134.8 million of proceeds, subject to post-closing adjustments, and recorded a $13.6 million pretax loss. The filing reports QED as part of SCEM in the divestiture note and recent-events discussion, while the segment analysis attributes the sale loss to SCEM.
- Management cited semiconductor-market softness across many SCEM product lines, while noting strength in leading-edge applications and liquid filtration. No numerical company-wide guidance is provided in the supplied filing text.
- Key risks include semiconductor demand and economic weakness, substantial acquisition-related debt and interest costs, integration and synergy execution, China export controls and trade restrictions, currency movements, supply constraints, customer concentration, and competition. Management reported effective disclosure controls; CMC Materials’ internal controls were excluded from the quarter’s evaluation while integration and assessment continued.
Important facts for investors to verify
- EC sale closing, final proceeds and adjustments, regulatory approvals, and whether the expected absence of a material gain or loss holds.
- Quarterly semiconductor demand trends and the extent to which reported growth reflects CMC acquisition contributions versus underlying performance.
- Debt-service burden, variable-rate exposure, refinancing and repayment plans, and compliance with covenants.
- Reconciliation and assumptions behind non-GAAP results, including excluded recurring or potentially recurring costs.
- QED post-closing adjustments and tax effects, and the continuing disposition status and carrying values of PIM assets.