Entegris, Inc. — Q3 2015 Form 10-Q
Reporting period: Quarter ended September 26, 2015; year-to-date figures cover nine months. Entegris supplies materials and solutions for semiconductor and other high-technology manufacturing. Results include ATMI, acquired in April 2014, so year-over-year comparisons are affected by acquisition timing and related costs.
Financial results
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Net sales | $270.3m | $273.1m | $814.3m | $690.4m |
| Gross profit / margin | $116.3m / 43.0% | $98.7m / 36.2% | $360.9m / 44.3% | $258.8m / 37.5% |
| Operating income | $31.1m | $5.4m | $98.0m | $0.5m |
| Net income (loss) | $23.4m | $(1.1)m | $62.7m | $(1.4)m |
| Diluted EPS | $0.17 | $(0.01) | $0.44 | $(0.01) |
| Operating cash flow | — | — | $68.7m | $91.2m |
Q3 sales declined 1% year over year; excluding $12.6m of unfavorable currency translation, sales increased 4%. Nine-month sales rose 18%, reflecting $120.3m of incremental ATMI sales, partly offset by $30.5m of adverse currency translation; excluding those factors, sales grew 5%. Q3 sales were down 4% sequentially (3% excluding currency), as semiconductor demand softened.
Q3 gross margin was below the prior-year adjusted margin of 45.1% and Q2 2015's 45.6%. Management cited less favorable mix, higher warranty costs, and lower factory utilization. The reported year-over-year margin improvement chiefly reflects the absence of a $24.3m ATMI acquired-inventory charge recorded in Q3 2014. Nine-month 2014 gross margin excluding $48.6m of such charges was 44.5%.
Cash and cash equivalents were $301.1m at September 26, versus $389.7m at year-end 2014. Working capital was $515.2m. The company used $53.2m in investing activities, including $55.7m of capital expenditures, and paid down $100.0m of term debt. Total debt was $667.1m, down from $766.8m; debt comprised a $307.1m term loan and $360.0m of 6% notes due 2022. No ABL borrowings were outstanding. The filing reports $75m of ABL capacity subject to a borrowing base, with $0.2m of letters of credit undrawn against the facility.
Q3 segment results: Critical Materials Handling (CMH) sales were $166.0m and segment profit $37.1m; Electronic Materials (EM) sales were $104.2m and segment profit $23.9m. EM profit declined from $33.3m a year earlier, reflecting lower sales, utilization, and margins, and higher operating expenses.
Material changes and unusual items
- GAAP profitability improved sharply from the year-ago quarter and nine-month period, which included acquisition-related costs and acquired-inventory fair-value charges. Q3 SG&A fell 16% year over year, mainly due to reduced ATMI integration costs; nine-month R&D rose 28%, largely from ATMI spending.
- Other income was $5.6m in Q3 and $8.5m year to date, primarily from foreign-currency transaction gains of $5.5m and $8.8m, respectively. The company also recorded $13.2m of losses on foreign-currency contracts year to date; derivative gains and losses are included in other income/expense.
- Foreign currency translation reduced nine-month equity by $50.3m. Q3 comprehensive loss was $12.3m despite net income, mainly due to currency translation losses.
- Non-GAAP adjusted EBITDA was $58.2m for Q3, down 9%, and $181.0m year to date, up 19%. Non-GAAP diluted EPS was $0.23 for Q3 and $0.65 year to date. These company-defined measures exclude items including amortization and acquisition-related costs; they are not substitutes for GAAP results.
Outlook, risks, and contingencies
Management expected 2015 capital expenditures of approximately $65m–$70m; $55.7m had been spent through September 26, and outstanding capital purchase obligations were $14.3m. Management believed cash, available credit, and operating cash flow would cover working-capital and investment needs for at least 12 months. It cautioned that alternative financing, if required, might not be available on acceptable terms. No specific revenue or earnings guidance is stated in the filing.
Key risks include semiconductor cyclicality, pricing and competition, sales mix and utilization, raw-material costs, foreign-exchange movements, and debt obligations. The filing highlights export-license requirements and tighter import scrutiny for gas cylinders and chemicals in Singapore and China, which could delay shipments or reduce sales. The company reported compliance with debt covenants. Ordinary-course legal matters were not expected to have a material adverse effect. Disclosure controls were judged effective; management continued to assess controls following migration of former ATMI financial systems to Entegris’s SAP platform.
Investor verification points
- Separate underlying demand and organic growth from ATMI acquisition contributions and currency effects; note sequential sales and utilization weakness.
- Assess whether gross-margin pressure from mix, warranty costs, and lower utilization persists, and distinguish GAAP results from adjusted measures.
- Monitor receivables and inventory: DSO rose to 62 days from 52 at the start of the year, while working capital increased.
- Review cash generation, planned capital spending, debt repayment capacity, and the borrowing-base availability of the ABL facility.
- Track foreign-exchange exposure, export/import licensing developments, and any material changes in legal matters or financial-reporting controls.