Entegris, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended April 2, 2016; comparisons are with the three months ended March 28, 2015. Entegris supplies materials and solutions for semiconductor and other high-technology manufacturing.
Financial performance
| Metric | Q1 2016 | Prior-year quarter |
|---|---|---|
| Net sales | $267.0 million | $263.4 million |
| Gross profit / margin | $114.7 million / 43.0% | $116.5 million / 44.2% |
| Operating income / margin | $29.6 million / 11.1% | $27.5 million / 10.5% |
| Net income | $16.2 million | $14.9 million |
| Diluted GAAP EPS | $0.11 | $0.11 |
| Operating cash flow | $17.3 million provided | $0.1 million used |
- Sales increased about 1%; excluding $0.8 million of unfavorable currency translation, sales rose about 2%. Net income increased about 9%, while diluted GAAP EPS was unchanged.
- Gross margin declined 1.2 percentage points, attributed mainly to sales mix, higher excess and obsolete inventory charges, and qualification and start-up costs at the i2M Center.
- Adjusted EBITDA, a non-GAAP measure, was $54.5 million (20.4% of sales), versus $55.8 million (21.2%). Adjusted operating income was $40.8 million versus $42.5 million; non-GAAP diluted EPS was $0.17 versus $0.18.
- CMH sales were $166.2 million, down from $167.5 million; segment profit declined to $37.9 million from $41.3 million. EM sales rose to $100.8 million from $95.9 million, and segment profit rose to $21.6 million from $20.2 million.
Cash, debt and liquidity
- Cash and cash equivalents were $344.4 million at quarter-end, down from $349.8 million at December 31, 2015. Working capital was $558.1 million.
- Total debt carrying value was $656.6 million, including $50.0 million of current maturities; debt fair value was reported as $663.2 million. Cash therefore stood about $312 million below total debt.
- Investing cash outflow was $20.3 million, including $17.8 million of capital expenditures. Financing cash outflow was $5.6 million, including $3.6 million of share repurchases. Cash decreased $5.4 million overall.
- Management expected 2016 capital expenditures of approximately $80 million and stated that available cash, credit facilities and operating cash flow should meet working-capital and investment needs for at least 12 months. The $75 million revolving facility had no borrowings; the filing reports $0.2 million of undrawn availability after letters of credit. The company reported compliance with applicable debt covenants.
Management commentary, outlook and risks
- Management cited modestly improved semiconductor demand, partly offset by lower sales of certain specialty materials. EM growth reflected advanced deposition materials; CMH weakness included specialty materials and start-up costs.
- SG&A declined $2.9 million, mainly because the prior-year period included $2.6 million of ATMI integration costs. Interest expense also declined, reflecting lower borrowings after 2015 term-loan repayments.
- Key stated exposures include industry cyclicality, pricing and competition, sales mix and input costs, fixed-cost absorption, foreign exchange, interest rates, manufacturing risks and indebtedness. A 100-basis-point interest-rate change was estimated to affect annual net income by approximately $0.3 million.
- Ordinary-course legal claims were not expected by the company to have a material adverse effect. Management reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
- The filing gives no specific sales or earnings forecast. Management estimated 2016 capital spending at about $80 million. Adoption of new revenue, lease and stock-compensation accounting standards was still under assessment.
Important facts for investors to verify
- Operating cash-flow discrepancy: The cash-flow statement reports $17.3 million provided, but the MD&A calls the same amount cash “used.” Confirm the correct characterization against the filed financial statements.
- Track whether gross-margin pressure from inventory charges, mix and i2M Center start-up costs persists, and whether CMH segment profitability recovers.
- Monitor debt service and liquidity, including the $50 million current debt maturity, planned capital spending and the availability of foreign-held cash. The filing says $216.1 million of cash was held by foreign subsidiaries and some repatriation could incur U.S. tax.
- Assess reported GAAP results alongside non-GAAP measures; the company notes that its non-GAAP measures exclude recurring depreciation and amortization and may not be comparable with other companies’ measures.