Good day, everyone, and welcome to Entegris' First Quarter Earnings Conference Call with Analyst. 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, sir..

Good morning, everyone and thank you all for joining our call. Earlier, today we announced the financial results for our first quarter ended March 28, 2015. You can access a copy of our press release on our website entegris.com. Before we begin, I would like to remind listeners that our comments today 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 a reconciliation table in today’s press release, as well as on our website.

On the call today are Bertrand Loy, President and CEO; and Greg Graves, Chief Financial Officer. Bertrand will now begin the call.

Bertrand?.

Thank you, Steve. I will make some general comments on the business and Greg will then provide more details on our financial performance. Overall I am very pleased with our quarterly results.

Our revenue of $263 million were in line with our expectations and we are 5% above the same quarter a year ago on a pro forma basis despite the impact from the stronger dollar. The quality of our execution was solid as we improved our operating margin and achieved non-GAAP EPS of $0.18.

We generated $56 million of EBITDA and pay down our debt by $25 million. Integration of ATMI is virtually completed and we are now fully focused on leveraging our broader technology and operating platforms. Trends in the semiconductor market in Q1 were seasonally soft as expected.

Additionally, a number of IDMs and foundries reduced their manufacturing activity in response to sluggish demand in some end markets such and PC and mobile devices.

Our adjacent markets represented approximately 20% of our revenue in Q1, trends in these markets were generally positive with continued recovery in solar and LED production, offset by seasonal softness in data storage and display. In light of this patterns, the Critical Materials Handling, or CMH grew both sequentially and year-over-year.

We had a strong quarter of group sales driven by demand from foundry customers getting ready to ramp their 14 and 16 nanometer nodes. We also recorded higher sales of specialty materials products in a number of new emerging applications.

The Electronic Materials or EM segment continued or decline from the relatively strong Q4, but grew slightly from a year ago on a pro forma basis. Growth of specialty gas products was offset by softer sales of advance chemistries, which reflected reduced fab utilization at some customers.

In March, we received Intel’s Preferred Quality Supply Award for the first time. We are particularly pleased with this achievement since we accomplish this during a year when the organization was mostly focused on completing the ATMI integration. Entegris was among 19 suppliers to Intel that earn this distinction.

Leadership in our markets today requires more than having the best technology. To be a strategic supplier you now need advanced quality systems and rigorous management of your supply chain. Precision, speed, control and collaboration are also needed to drive innovation and enable the industry roadmap.

This award validates the investments we have made to be a better supplier and signals our ongoing commitment to continuous improvement. Regarding our integration of ATMI I am very proud to say that the integration is virtually complete.

I want to extent my sincere thanks to the global Entegris teams for their relentless dedication and the quality of their work. Within one year since completing the deal we are ahead of our objectives in terms of magnitude of the savings realized, the timing of putting these savings in place and the cost required to unlock the synergies.

Our full attention can now return to maximizing the potential of the broader platform we have created, both in terms of technology solutions and our global operational capabilities. This is a dynamic time for the semiconductor industry.

Our semi staff customers are aggressively working to make their ramps of 14 and 16 nanometer technologies as effective as possible. At the same time they are already turning their attention to developing the next generations of process technologies and we are actively engaged with them on these projects.

I am very excited about the pipeline of products and new opportunities we have in front of us. To address emerging technology challenges as well as to honest of strength and legacy notes and to expand in new adjacent markets. I would now turn the call to Greg for the financial details.

Greg?.

Thank you, Bertrand. I was very pleased with our results for the quarter. We achieved non-GAAP EPS of $0.18 and improved our adjusted operating margin to 16.1%. When we adjusted for unrealized synergies this would have been 17.3%, which is in line with our target model. Q4 sales of $263 million were in line with our expectations.

Overall, the impact from FX moderated from Q4, but still represented a $3 million headwind to revenue on a sequential basis and an $8 million headwind compared to a year ago. By segment, CMH revenues of $167 million were up 1% from Q4 and 7% above the first quarter a year ago on a pro forma basis.

The operating margin for CMH improved to 24.7% from 18.8% in Q4, primarily as a result of improved factory performance, better product mix and lower allocated sales expense. These favorable items were offset in part by ongoing qualification cost for the i2M center.

EM Q1 revenues of $96 million declined 9% from the strong Q4, or up 1% year-over-year on a pro forma basis. The lower volumes and higher allocated sales expense drove the decline in EM’s operating margin to 21.1% from 28.8% in the fourth quarter. As Bertrand indicated, the integration of ATMI is basically complete.

We expect to have nearly all of the $30 million in annualized cost synergies in place by Q3, which is faster than originally expected. We’ve incurred approximately $22 million of integration expense to-date and we expect total integration expense to be approximately $28 million or about 20% below our initial estimate of $35 million.

We expect integration cost to be about $2 million in the second quarter and then to taper off through the balance of the year. Gross margin of 44.2% improved from 43.6% in Q4, due to better manufacturing performance and improved product mix. In Q2, we expect gross margins to improve slightly given the higher expected revenue levels.

Including amortization and transaction related costs; non-GAAP operating expenses were $74.1 million in Q1, down slightly from Q4 and at the low end of our guidance. For the second quarter, we expect non-GAAP operating expenses to be $74 million to $76 million.

Net interest expense continue to decline and was $9.6 million in Q1, reflecting the lower levels of debt. The GAAP tax rate for the quarter was 24%, on a non-GAAP basis in Q1 our tax rate was 27%. We expect the similar tax rate for the balance of the year. Adjusted EBITDA for the quarter was $55.8 million giving us an EBITDA margin of 21.2%.

When adjusted for unrealized synergies EBITDA would have been $58.9 million or 22.4% EBITDA margin. Cash flow from operations for the quarter was essentially breakeven and in line with our expectations.

Cash flow reflected an $18 million decrease in accrued liabilities for the payment of our annual incentive compensation, and as expected higher accounts receivable levels, due to the timing of customer collection. Our cash balance at the end of Q1 was $341 million; a decline of $48 million from Q4.

This reflects the lower cash from operations, $25 million debt repayment and $20 million of capital expenditures. Total long-term debt including current maturities was $741 million and our net leverage ratio was 1.7 times.

As we have previously discussed, we expect to pay down an additional $75 million in debt over the next two quarters, consistent with our stated priorities for capital allocation in 2015. In Q2 we are planning for CapEx of approximately $15 million with depreciation of approximately $14 million.

For the full year we expect CapEx to be approximately $60 million. Turning to our outlook despite the mix news from some chip makers and OEMs we believe 2015 will be a good year for Entegris, given our predominantly unit driven model and solid pipeline of new products. For Q2 we expect sales to range from $265 million to $280 million.

At these revenue levels we expect non-GAAP EPS to be $0.18 to $0.21 per share consistent with our target model. In summary, we executed well and achieved our target model. We improved gross margin and effectively managed operating expenses.

We grew our sales 5% compared to a year ago, despite a significant headwind from the stronger dollar and we continue to pay down debt. With that operator we’ll now take questions..

Thank you. [Operator Instructions]. And we’ll take our first question from Jason Ursaner with CJS Securities..

Good morning..

Good morning, Jason..

Just first on the cash flow and I apologize if you did say this in the prepared remarks, but there was a fairly sizable working capital outflow during the quarter, just wondering what expectations are for free cash flow for the full year in terms of cash conversion or some type of percentage of net income or anything like that?.

What I would say is, first of all with regard to the changes in working capital Jason it’s really a timing issue if you look the bulk of the change in cash flow from operations between Q4 and Q1 related to accounts receivable many of our customers in Asia pay on the calendar quarter end date.

So if you were to roll it back on between our quarter end on March 28th and March 31st, we collected about $37 million in accounts receivable because a number of the Asian customers tend to pay right on the date, so nothing out of the ordinary.

As we move in to Q2 we’d expect the receivables turns to go DSOs to go to more normalize levels and I think you’ll see operating cash flow again in that kind of $50 million a quarter range like we were seeing in the later quarters of last year..

Okay, great. That’s actually very helpful.

And then just for Bertrand, you mentioned the Intel Award and some of the characteristics that go into being a strategic supplier now that go well beyond just having good technology, I am wondering if you can maybe talk a little more about how you see this changing the bearers to entry for the whole semiconductor equipment and materials market? And then for Entegris specifically, understanding that it may not showing up in sales today, what is being more tightened with the tech roadmap mean in terms of share at the leading edge that might be more critical for the next couple of years?.

Well thanks Jason, this is actually a great question and as we said I think that to be viewed as a strategic supplier in this industry you need a lot more than just being a technology leader.

The technology leadership gets you a seat at the table, it’s an unwritten right [ph] if you want, but you also need to be able to have robust manufacturing capabilities as well as being I would say a partner that is easy to do business with. And those attributes are things that are really difficult to create.

So if you think about the manufacturing environment variability is a killer in our industry you need stable, you need capable you need cleaner processes and we have made a lot of very significant investments to reach acceptable levels of performance on those fronts and can always improve, but I am pleased with the progress we have made and we will continue to improve it, it’s a journey, it’s an endless quest for excellence but we have made a lot of process.

In terms of the ease of doing the business increasingly it is important to have the right level of global infrastructure not just in terms of local manufacturing capabilities, but you need to have the right capabilities in terms of development, analytical capabilities in the major markets particularly through in Taiwan and in Korea and I would say the ATMI acquisition was a great help to get to that point as we added much needed critical mass in R&D capabilities in those two countries.

So I think that Entegris has done a lot in the last several years to improve and I think that we are viewed today as a much a better partner than ever before and over time it’s going to make us a much stronger competitor..

Okay, great. I will go back in the queue and let’s some others have a chance, but great quarter and I will catch up with you guys later. Thanks..

Thanks, Jason..

And we have next to Patrick Ho with Stifel Nicolaus..

Thank you very much and congrats on a very nice quarter.

Bertrand first off maybe as a follow-up to that semi question that was just asked, can you remind of some of the increase in capital intensity trends for Entegris on both the your traditional Entegris products as well as of some of the materials opportunities given a lot of the process technology changes we are seeing in both FinFET, 3D NAND multi pattering.

How much do you see I guess capital intensity for your solutions say over the next few nodes?.

The - I not sure I totally understand your question, Patrick. As you know the solutions that we are providing our customers are usually taking the form of chemistries, filters, so they are not viewed as a FX sales to our customer instead they would be viewed as materials and consumables by the fab.

So I am not sure that we have - we are measuring in fact our market share gains so are increasing some in terms of capital intensity. Having said that we do believe that as the industry transitions from say 14 nanometer to 10 nanometer that you will see an increase in some.

There has been a number of external studies published around that, we have of course some internal work that we have been developed, the increased opportunity would be probably in the range of 20% to 30%, but as I stated in prior calls, I certainly would want to see some of those funds in operation and running high volume productions before we can actually formally finalize those expectations.

So again I would expect some positive trends, as the industry continues to advance to tighter nodes. But again we will - you have to stay tuned before we can actually qualify that in more final terms..

Yeah I apologize.

But you answered the question, but I was looking more maybe capital intensity trends is not the right metric, but just given all the materials engineering that’s going on with semiconductor manufacture processes while I was trying to get some I guess say a more quantifiable look in terms of your content and your market expansion as you mentioned on a go forward basis.

So 20% to 30% makes a lot of sense. Maybe going to the adjacent markets for a second, obviously ATMI broadens your product portfolio and opportunities there.

Can you just broadly discuss what are some of the non-semis and adjacent markets that ATMI could potentially bring you into?.

So I would say that, if you think about the non-semi markets that we’ve been traditionally participating into, it would have a long list ranging from data storage, LED, solar and again it was actually a very good quarter for all of those markets segments. Today most of those non-semi opportunities relate to legacy Entegris products.

Having said that to your question I would say that the primary opportunities for us will be for the legacy ATMI technologies would be around the electronic waste recycling opportunity, what is referred to as an the evolved technology.

We are aggressively funding this initiative, but it is really too early for us to really quantify the size of this opportunity long-term.

Something that again we continue to remain very excited about, but not something that had any bearing in the most recent quarter and not something that would anticipate without any significant bearing this year in 2015..

Great thank you very much..

And we'll take our next question from Amanda Scarnati with Citi..

Hi thanks for the question. You had mentioned that there was an impact due to lower utilization at some of the fabs.

You’ve been impacted at all by the higher [indiscernible] mentioned by TSMC and Intel or is that sort of a non-issue for Entegris?.

Amanda it’s really a non-issue for us. If you think about the amount of materials that those fabs will be using, whether it’s a new fab or a fab that will be reducing existing equipment, it doesn’t really change much if anything for us. And again 80% of our businesses as you know is wafer start driven.

So we have a small factoring for our business that is CapEx driven. And if you think about that we actually have seen a very robust performance in our FOUPs platform. So a lot of the customers migrating to 16 and 14 did actually purchased a number of new FOUPs that are required for them to manage this transition.

So our business actually was very favorably impacted by the transitions to tighter nodes..

Great, thank you.

And what do you see as the biggest growth drivers for Entegris in 2015? Is it just higher process that is going to drive increased revenue or is there some other growth drivers that you’re looking forward to this year?.

I am sorry Amanda, can you repeat the question?.

Sure.

So what are the biggest growth drivers that we should expect that out of Entegris this year? Is it increased process that will be transition to higher nodes and 3D NAND? Or are there other drivers that we should expect to see out of the revenue lines this year?.

So it will be the greater number of wafer starts in the year, so that’s the first driver. The second driver will be indeed the greater opportunities that we see as the industry transitions to tighter nodes and one of the reasons for that is the increase in number of process steps at those tighter nodes.

And then lastly it will be the successful introduction of a number of new products and new product lines both in semi as well as in non-semi applications..

Great, thank you..

We’ll go next to Dick Ryan with Dougherty..

Hey, thank you, Hey Greg can you talk a little bit about your assumptions for the CapEx side in unit driven business, maybe address this on your guidance for Q2 and any visibility you have yet on either side going into the second half of the year?.

Say with regard to the unit side of the business our assumption is that while the outlook is a little bit unclear that Q2 is typically a much stronger quarter for unit production so we do expect to see some improvement in units and so we should see some improvement in that side of the business for Entegris.

On the CapEx side as it only being 20% of our business I would say we’ve got less visibility there, but in general I think our outlook there will be flattish..

Okay.

And now that you’ve had concentration issues, but is there any 10% customers or do you have the top 10 contribution?.

For the quarter, I mean it looks a lot like what we disclose in our investor presentation for the top 10, the one large customer that we disclosed in our 10-Okay, TSMC continues to be above 10%, but no one else has reached that threshold..

Okay, thank you..

And we’ll go next to Jairam Nathan with Sidoti & Company..

Hi, thanks for taking my question.

Just one question on the margins, so we did see the EM segment margins go down and you talked about some cost here so if that trend story do we expect that to come back especially given that you said as TS had a pretty strong quarter?.

So yeah and I commented in both CMH and EM about CMH as we readjust our sales force and some of our go-to-market strategy and our sales force is organized we’ve also reallocated how those expenses are split between the two division.

So EM about 2.5% to 3% negative impact on the margin related to a higher allocation of sales cost and you’d say vice versa with regard to CMH and they clearly benefited from lower sales cost. Our overall sales cost remained relatively constant and are continue to be consistent with our target model.

Other than that I mean the EM margin, I mean that accounts for a meaningful part of the drop, but the other pieces it is the revenue was down $10 million, so just the impact of volumes really played a meaningful role in that decline in that operating margin there..

Okay, Thanks.

And with respect to - you kind of try to talk about Entegris as more of a unit driven business, how conjoined are the CapEx spend unit driven businesses within Entegris and how should we think about not in the near-term, but overtime either selling the CapEx driven businesses or is that a non-starter?.

No I think that again I mean, each of those product lines have a unique role to play in our portfolio, it doesn’t - the fact that they have different items doesn’t mean that they don’t belong in the portfolio.

If you think about the value proposition that Entegris brings across the ecosystem this is really around contamination control, it’s around better solutions to manage particular chemistries and critical substrates.

So when you think about for instance our FOUP platform they play a very critical role in the fab as it transports in a very pristine way, the in-process wafer from one process step to the next so it’s very consistent with the overall value proposition that we want to be providing to our customers.

The fact that it’s again not unit driven product is or most irrelevant. And very frankly I think that this is probably a way of describing our business that we are going to try to move away and going forward, because I don’t think it’s particularly relevant..

Okay, thank you..

We will go next to Todd Morgan with Jefferies..

Thank you, good morning, good quarter. I just wanted to follow-up on SG&A and I don’t think I heard you call it out, but I apologize if you did.

Much lower sequentially and I guess so is there any big items behind that, is that kind of a run rate to think about going forward?.

Todd its Greg Graves.

We will see, we talk about our guidance for overall OpEx of being $74 million to $76 million in the coming quarter, I think you will continue to see SG&A trend down slightly as the accounting, finance and IT folks lead ATMI, which is actually happening this week and then you will see some of that investment that shift over to the ER&D side..

That makes sense, no. And then secondly, is I think you talked also about some of the new products that you are working on, can you give us a sense to the broad timeframe for when we might see those products start to impact the P&L.

Do we need to see kind of the next node size really grow or is this something just in processing?.

It’s really a collection of new products and opportunities that relate to different nodes and across different markets I mean remember that we don’t really have any product line in our portfolio that would represents more than $50 million of revenue on an annual basis.

So, again if you look at the Entegris in general it’s really a collection of small product platforms or derivatives and again we are trying to address different opportunities across leading edge and legacy fabs alike and across different markets..

No, okay, I understand that.

But in general sort of the efforts that you have obviously started as part of the acquisition and integration the products that you would hopefully then we will cooperating on are those items that could brought to market this calendar year, next calendar year is there any broad sense of timing for when those sort of development might start roll out?.

If you think about the more meaningful platform development work usually most of them relate to the advance nodes and right now I would say the bulk of that activity is targeting the 10 nanometer process node. So it’s not something that will impact our P&L and the top-line until most likely next year..

Okay, great, well thank you, good quarter..

Thanks, Todd..

[Operator Instructions] We will go next to Christian Schwab with Craig-Hallum Capital Group..

Hey, good morning guys.

I was just looking for a little bit of further clarity on the growth drivers for ‘15 that you talked about wondering one, what is your expectation is for wafer starts? Two, what the growth rate expands to given the opportunity for increased number of process steps as we shrink nodes? And three, a qualification of the impact of new products, don’t expect you to talk about for competitive reasons what they are potentially what the revenue amount we should expect is?.

Right, so, Christian this Bertrand. We continue to believe that the MSI index will be up in 2015 most likely in the low single-digit range around 2% to 3%.

Again as I stated earlier we are very excited with the amount of new products and new opportunities that we have in the pipeline, so that’s going to be fuel that will allow us to outperform the industry by about 100-150 basis points, that’s the stated objective that we have. And as you know MSI is an index that doesn’t adjust for the currency impact.

So I would tell you that we feel pretty good about the way we started the year we are up 5%, which we believe is ahead of MSI at this point. And again we have accomplished in an environment with very severe headwinds from the foreign currency translations. So, good start and we continue to remain optimistic for the balance of the year..

Great, thanks guys..

Thank you..

And we have no further questions in the queue. I would like to turn the conference back to Bertrand Loy for any additional or closing remarks..

Well thank you all for joining us on the call today. We look forward to seeing you at our Analyst Day in July or on the call to review our Q2 results. Thank you..

Again that does conclude today’s presentation. We thank you for your participation..