Bertrand Loy - President, Chief Executive Officer Gregory Graves - Executive Vice President, Chief Financial Officer Steve Cantor - Vice President, Investor Relations.

Patrick Ho - Stifel Nicolaus Dick Ryan - Dougherty Christian Schwab - Craig Hallum Frank Garman - Goldman Sachs Todd Morgan - Jefferies.

Good day everyone and welcome to the Entegris Second Quarter 2015 Earnings call. 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..

Great, thank you. Good morning everyone. Thank you all for joining our call today. Earlier we announced the financial results for our second quarter ended June 27, 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..

Thank you, Steve. I will make some general comments on the business. Greg will then provide more details on our financial performance. Overall, I am very pleased with our quarterly results and the quality of our execution. Our revenue of $281 million was up 7% from the first quarter and was at the high end of our guidance.

We exceeded our target model and achieved non-GAAP EPS of $0.24. We continue to pay down our debt with a $50 million repayment in the quarter. We are very excited about the new Entegris platform and the visibility and level of customer engagement it is providing us. Our semiconductor-related sales grew 6% sequentially, which was ahead of our markets.

While trends in the industry were somewhat mixed, semiconductor unit production was seasonally higher in the second quarter. Our performance reflected solid demand from both fab and OEM customers as leading-edge foundries continue to ramp their advance nodes.

In addition, our legacy products benefited from new demand related in part to emerging Internet of Things applications. We had another quarter of strong performance in our adjacent markets, which represented approximately 23% of our revenue in Q2. Sales in these markets were up 9% sequentially driven by compound semi and industrial applications.

By segment, critical materials handling, or CMH, grew 4% sequentially but declined 3% on a pro forma basis from its record high quarter a year ago. On a sequential basis, filtration sales grew modestly while sales of FOUP and specialty materials were strong.

The electronic materials, or EM, segment grew 11%, rebounding at expected from a seasonally slow Q1. Growth was driven by strong demand for advanced chemistries and specialty gas solutions. I am pleased with our results thus far this year. Through the first six months of 2015, we grew our sales 2% from last year on a pro forma basis.

When adjusted for the 3% headwind from the strong dollar, this represented a 5% gain from the prior year. While industry trends are somewhat uncertain in the near term, we see a number of possible tailwinds for us in the second half. Some of these tailwinds are industry driven, such as the continuing ramp of 14 and 16 nanometer technologies.

Other tailwinds include opportunities to capture share in both new and existing markets, and the easing of some capacity constraints as we ramp our i2M production. For the longer term, the prospects for Entegris have never been better. I had an opportunity to meet with a number of our customers at the SEMICON West trade show two weeks ago.

The recurring theme at the show was that the induction of advanced process technologies is proving to be even more challenging than anticipated. These challenges are rich in opportunities for us.

More than ever before, the industry’s technology leaders are engaging our teams in joint development work that will leverage our unique materials and contamination control capabilities.

These joint developments are already leading to multiple breakthroughs in advanced filtration, materials, as well as new fluid handling and packaging solutions for critical defect reduction and yield enhancement. We believe it is more than just our technology that is giving us a seat at the table with the industry leaders.

During our analyst day at SEMICON West, we talked about how the new Entegris platform is creating value for all stakeholders by leveraging our unique combination of technology breadth, global capabilities and operational excellence. These three elements are proving to be key differentiating factors in our markets.

Over the coming quarters, we will demonstrate that through execution, strong operating leverage, and disciplined capital allocation, we can drive significant EPS expansion. I will now turn the call to Greg for the financial detail.

Greg?.

Thank you, Bertrand. I was very pleased with our results for the quarter. We achieved non-GAAP EPS of $0.24 per share and improved our adjusted operating margin to 19.15, slightly above our target model. Q2 sales of $280.7 million were at the high end of our expectations and were 7% higher on a sequential basis.

This was flat with pro forma sales a year ago despite a $10 million or 3% headwind from the impact of foreign currency. By segment, CMH revenues of $174 million were up 4% from Q1 and 3% below the same quarter a year ago on a pro forma basis.

Year-over-year, we saw weaker sales in fluid handling products and micro environments, offset in part by strength in specialty materials. The operating margin for CMH improved to 25.1% from 24.7% in Q1 as a result of favorable product mix and slightly lower spending.

EM second quarter revenues of $106 million increased 11% from Q1 and were up 5% year-over-year on a pro forma basis. The improvement, both quarter-over-quarter and year-over-year was due to strength in advanced chemistries and specialty gas products. EM operating margin of 26.8% was up from Q1 largely as a result of higher volumes.

Gross margin of 45.6% improved from 44.2% in Q1 due to higher volumes, favorable product mix, and slightly lower raw material costs. Aside from combining several legal entities, our integration with ATMI is complete, ahead of our original schedule. We have achieved the $30 million of synergies.

Excluding amortization of $12 million and integration expense of $2.4 million, non-GAAP operating expenses were $74.4 million in Q2. This was at the low end of our guidance and reflected a decline as a percentage of sales from the first quarter.

With the full $30 million of annual cost synergies from the ATMI transaction in place, we expect non-GAAP operating expenses to be $73 million to $77 million in the third quarter of 2015. We’ll have approximately $1.5 million in integration costs in Q3, which will be the last quarter we break out these costs.

Net interest expense was $9.7 million in Q2. The GAAP tax rate for the quarter was 20%. On a non-GAAP basis, our tax rate was 25%, which was lower than initially anticipated due to favorable geographic income mix. We expect a similar tax rate for the balance of the year.

Adjusted EBITDA for the quarter was $67.1 million, giving us an EBITDA margin of 23.9%. Cash flow from operations for the quarter was $36 million, which included a $21 million increase in inventory. The increase in inventory was the result of strategic raw material purchases in additional inventory to support higher demand levels.

Inventory turns were 3.5, down slightly from 3.6 in the first quarter. Our cash balance at the end of Q2 was $314 million, a decline of $28 million from Q1. This reflects cash flow from operations less the $50 million debt repayment and $14 million of capital expenditures in the quarter.

Total long term debt, including current maturities, was $692 million, giving us a net leverage ratio of 1.5 times. With $50 million of debt repayment in Q2, we have repaid $126 million of debt since completing the ATMI acquisition in April of last year.

This puts us well on the way to meeting the commitment we made at the time of the deal to repay at least $150 million of debt by the end of 2015. In Q3, we are planning for capex of approximately $15 million with depreciation of approximately $14 million. For the year, we expect capex to be approximately $65 million.

This is $5 million higher than originally planned due to strategic capacity investments in our specialty gas and specialty materials businesses to accommodate anticipated growth. Turning to our outlook, for Q3 we expect sales to range from $270 million to $285 million.

At these revenue levels, we expect non-GAAP EPS to be $0.20 to $0.25 per share, consistent with our target model. In summary, we were pleased with our top line performance, which reflected growth in both our semiconductor and adjacent markets.

We made a sizeable repayment of debt and are on track to meet our original debt repayment commitment, and we had excellent execution, achieving operating margins of 19% and non-GAAP EPS of $0.24 per share, which exceeded our target model. Operator, we’ll now take questions..

[Operator instructions] We’ll go first to Patrick Ho with Stifel Nicolaus..

Thank you very much, and congrats on a very nice quarter and outlook. Bertrand, first you mentioned in terms of your prepared remarks regarding the industry environment being mixed right now in terms of the units market.

Can you give a little more color what was the bigger driver for you guys in both June and the September outlook in terms of, say, leading edge--you know, the 16, 14 nanometers that you mentioned, or the emergence of IOT applications which tend to be the more mature technology node units.

Which was the bigger driver for June, as well as the outlook for September?.

Hi Patrick.

First of all, you’re right - I think we faced a fairly mixed industry environment in Q2, but we certainly saw a number of our customers gearing up their efforts as they were getting ready to ramp up their new node and we benefited from that, and that’s probably the single largest positive driver that we experienced in Q2 and going forward in Q3 that will most likely also be the single most important positive driver for us.

Having said that, as I mentioned in my preliminary comments, we were very pleased with the continued strength that we experienced with some of our legacy fab customers, a trend that we started experiencing in Q1 and we were pleased to see the continuation of that trend going into Q2.

So as we mentioned and characterized during our analyst day, we believe that the firming up of that part of our business is most likely related to applications around the Internet of Things, and we are very pleased with that development..

Great, that’s helpful. Maybe as a follow-up question on the electronic materials then, you saw very strong growth and you mentioned some of the advanced chemistries as well as specialty gases.

From a semiconductor side, can you give some of the specific examples where you saw that strength, what were some of the drivers for, I guess, that above-average performance that you had in that business group?.

It was really across the board, and that probably was the most pleasing aspect of the performance of electronic materials during the quarter. So hard for me to single out any product line, so it was really across our advanced deposition materials, very solid quarter there.

Very pleased also with some recent wins at the leading edge for our cleaning chemistries, but also very, very pleased with the momentum that we are seeing behind the introduction of new boron mixtures, something that has been extremely well received for the iron implantation process steps.

So a very solid quarter all around for the electronic materials business unit..

Great, thank you very much..

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

Great, thank you.

Greg, in your third quarter outlook, can you give us what your assumptions are for both the unit and the capex side?.

Really comparable to what we saw in terms of mix in the most recent quarter..

Okay, and I’m not sure I caught the FX impact.

I thought you said $10 million, but do you have the bottom line impact, and again what you might be assuming for Q3 FX impact?.

Okay, so FX impact sequentially was really de minimis. It was few hundred thousand dollars. Year-over-year, the FX impact was about $10 million or roughly 3.5% headwind as it related to year-over-year growth. As we move into Q3, we’ll continue to have a headwind on a year-over-year basis.

We wouldn’t expect to see much of a headwind on a sequential basis. On a bottom line basis, we always talked about the fact that we’re pretty naturally hedged because we do manufacture a fair amount of product in Japan, and the yen is the biggest contributor to that weakness created in the top line. .

Okay. You talked about the inventory build.

Can we intimate anything from that about what you guys may be looking at for Q4?.

I wouldn’t really read too much into it. I think, as I said in the prepared remarks, we did have some opportunities to make some strategic buys on some of our resin-related products, which we did, so increase in raw materials. We’ve had to ramp inventories a little bit as we’re moving the i2M facility up.

We’ve added some inventory in Korea as we ramp our Jungwon [ph] facility, and so it was mostly things of that nature plus just an increase, as we saw, in just generally better trends in the business, but nothing specific..

Okay, thank you. Great quarter..

We’ll go next to Christian Schwab with Craig Hallum Capital Group..

Congratulations on a great quarter. When we look at--how long do you guys think that the growth lasts? We know there’s a lot more capacity finally going in and retrofitting, if you will, of absolute capacity for increased growth in the legacy nodes for the Internet of Things.

How long do you--if all the proclamations of billions of units out there in the future, would you expect your guidance for your growth potentially over the long term to be conservative; in other words, running chips at the 90 to 45 nanometer node a lot longer and possibly growing bigger than people think? What is your thought on that?.

I think we are certainly in the early stages of appreciating fully what the impact the Internet of Things applications may have for the industry in general and for the legacy fabs in particular, so it’s really hard to answer your question with certainty.

You know, you were in attendance during our analyst day, Christian, so you know that I stated my conviction that Internet of Things applications will be beneficial for the industry as a whole and for the legacy fabs in particular, and that’s embedded into our overall forecast that we expect wafer starts to grow on a secular basis in the low to mid-single digits.

So instead of trying to put all of those components apart, I think I would encourage you to stick to that overall industry assumption, which would be low to mid-single digit wafer starts, and then a commitment by Entegris management to actually outperform the industry to the tune of about 150 basis points.

The reason for that is, again, we believe that leading edge fabs will provide us with opportunities to increase our [sam] and to grow our share, so that’s really, if you want, the underlying industry dynamic that I want you to assume, and then again lay on top of that the commitment we are making to outperform the industry..

Great, thank you. No other questions. .

We’ll go next to Frank Garman with Goldman Sachs..

Great, thanks for taking my questions, guys.

Free cash flow improved pretty nicely in the quarter, and with your progress through the ATMI integration and the fact that you’re fairly close to the $150 million debt pay down target, where do you go from here with regards to future uses of free cash flow?.

Thanks for the question, Frank. This is Greg. What I’d say is we continue to believe we’ll have pretty strong, good free cash flow as we move forward from here.

We’re committed to making an additional $25 million payment in Q3, and I would say in all likelihood you’ll see us continue to be aggressive on the debt repayment beyond that, but we haven’t quantified that in our financial statements at this point..

Okay, great. Thank you.

Then I guess just higher level as you think about other acquisitions and your appetite for acquisitions, how do you think about the opportunities now that you’re sort of well through the ATMI integration efforts at this point?.

Frank, this is Bertrand.

I think right now, we’re still very focused on the aftermath of the ATMI acquisition, and what I mean by that is we want to take the time to solidify the new platform that we are creating, making sure that not only do we generate the synergies that we committed to but that we also realize some positive synergies that I expect to realize down the road.

There are a number of process optimizations that the team is very focused on working on, as well as continuing to strengthen the balance sheet.

So in a long, winding way to say that right now, we are still very much focused on running the business, but we are very pleased indeed with the way we were able to integrate ATMI and we will continue to be looking out for high quality assets, and to the extent that we can have access to high quality assets at the right valuation, this could be actually an important element of our growth strategy going forward..

Great, thanks so much. That’s all I had..

As a reminder, if you have a question, it is star, one. Again, if you have a question today, please press star, one. We’ll go next to Todd Morgan with Jefferies. .

Thank you. Good morning and good results here. Just following up on the debt repayment that you’ve accomplished so far.

How hard is it going to be to bring, what I’m assuming is bringing another $25 million or so back to [indiscernible] from international operations? And as a second part, sort of going forward, do you--my assumption is that you’re probably generating a lot of cash sort of internationally. How hard is it going to be to get that back to the U.S.

or wherever, so you can use it to repay debt if that’s what you choose to do? Thanks. .

Thanks Todd. What I would say is the Q3 $25 million payment isn’t conditioned on any specific repatriation. Beyond that, repatriation will be an element of it. I think we talked initially that we had a program in place to repatriate approximately $250 million to $300 million over a two to three-year period.

We are approximately $90 million into that, so over the next, call it 18 to 24 months, we should be able to repatriate the balance of that, so call it another $100 million to $150 million..

That’s great. Perfect, thank you..

There are no other questions in the queue at this time. I would like to turn the call back over to Bertrand Loy..

Well thank you all for joining us on our second quarter earnings call today, and I want to wish you all a great day. Bye bye..

That concludes today’s conference call. Thank you for your participation..