Entegris, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Unless stated otherwise, amounts are in U.S. dollars. This is an annual report; quarterly figures below identify the fourth quarter.
Business context
Entegris supplies advanced materials and process solutions, primarily to semiconductor manufacturers. Its three segments are Specialty Chemicals and Engineered Materials (SCEM), Microcontamination Control (MC), and Advanced Materials Handling (AMH). Management says about 69% of 2021 revenue was unit-driven or recurring. Semiconductor demand, more complex manufacturing processes, and increased requirements for materials purity are key business drivers.
Financial results and liquidity
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Net sales | $2,298.9 million | $1,859.3 million |
| Gross profit / margin | $1,059.7 million / 46.1% | $849.7 million / 45.7% |
| Operating income / margin | $551.8 million / 24.0% | $395.4 million / 21.3% |
| Net income | $409.1 million | $295.0 million |
| Diluted GAAP EPS | $3.00 | $2.16 |
| Operating cash flow | $400.5 million | $446.7 million |
| Capital expenditures | $210.6 million | $131.8 million |
Fourth-quarter 2021 sales were $635.2 million and net income was $118.2 million, compared with $517.6 million and $86.6 million, respectively, in fourth-quarter 2020.
Revenue increased 24%, mainly on higher semiconductor customer demand; acquisition contributions were $8.6 million and favorable currency translation was $2.7 million. Higher factory utilization contributed to the 0.4 percentage-point improvement in gross margin. SG&A rose 10% to $292.4 million, while R&D increased to $167.6 million (7.3% of sales). Adjusted EBITDA, a non-GAAP measure, was $699.4 million (30.4% margin), versus $542.5 million (29.2%); non-GAAP EPS was $3.44 versus $2.54.
All segments grew: SCEM sales were $711.3 million (+17%), MC $919.4 million (+24%), and AMH $704.9 million (+31%). Segment profits were $167.8 million, $321.3 million, and $160.0 million, respectively.
Cash and cash equivalents were $402.6 million at year-end, versus $580.9 million a year earlier; working capital was $934.4 million. Debt principal was $945.0 million ($937.0 million carrying value), down from $1,095.0 million principal. The company had no revolver borrowings and approximately $400 million of revolving capacity. Operating cash flow declined by $46.2 million, primarily because of higher receivables, inventory and tax payments. Inventory rose to $475.2 million from $323.9 million, in part as a supply-chain precaution.
In 2021 Entegris issued $400 million of 3.625% notes due 2029 and redeemed $550 million of notes due 2026, recording a $23.1 million debt-extinguishment loss. Other expense also included $7.9 million of foreign-currency transaction losses. The effective tax rate was 14.6%, compared with 16.7%.
Merger, outlook, and risks
In December 2021, Entegris agreed to acquire CMC Materials in a cash-and-stock transaction with an announced enterprise value of approximately $6.5 billion. CMC shareholders would receive $133 in cash and 0.4506 Entegris shares per share, subject to the agreement. Closing was expected in the second half of 2022 and required shareholder and regulatory approvals. Entegris had committed financing of up to $4.0 billion in term-loan financing and $895 million in bridge financing, plus additional revolving commitments. The filing estimated approximately $5.6 billion of pro forma combined-company debt using September 30, 2021 information and specified assumptions; this was not actual year-end debt.
The company provided no specific revenue or earnings guidance in the supplied filing text. It expected 2022 capital expenditures of approximately $500 million, including about $225 million for its new Taiwan facility, and expected R&D spending as a percentage of revenue to increase in coming years. Initial commissioning of the Taiwan facility was expected in late 2022, with production ramping thereafter. The board declared a quarterly dividend of $0.10 per share in January 2022. Share repurchases were suspended in connection with the proposed CMC acquisition.
Management reported strong 2021 demand for leading-edge products, but cited capacity constraints, raw-material shortages, higher freight costs, and delivery delays. Principal risks include semiconductor cyclicality, customer concentration (one customer represented about 12% of sales; the top ten represented 43%), dependence on some single- or limited-source suppliers, inflation and supply-chain disruption, COVID-19 impacts, China-related trade and export restrictions, foreign-exchange exposure, and execution, financing, approval, integration, and employee-retention risks related to the CMC merger. The company stated that it believed cash, operating cash flow, and capital-market access would meet foreseeable cash needs, while cautioning that future conditions were uncertain.
No litigation matters were identified as probable or reasonably possible to have a material adverse outcome at year-end. The financial statements received an unqualified audit opinion; management and the auditor reported effective internal control over financial reporting, with the acquired Precision Microchemicals business excluded from the 2021 controls assessment.
Important facts for investors to verify
- Whether the CMC transaction received required approvals, closed on expected terms, and resulted in debt and dilution consistent with the announced financing and consideration.
- Whether the planned $500 million of 2022 capital spending and Taiwan facility ramp proceeded as expected, and the effect on cash flow and capacity.
- Whether supply constraints, inventory build, cost inflation, and customer delivery performance improved or affected margins and working capital.
- How sustainable the exceptional 2021 sales growth and margins are, including the contribution from COVID-19 vaccine-related Aramus bags (over $50 million of 2021 sales).
- Whether customer concentration, China exposure, and currency sensitivity changed; a 10% decline in relevant foreign currencies versus the U.S. dollar was estimated to reduce annual revenue by about $52.4 million.