Entegris reports results for second quarter of 2019
Billerica, mass.--(business wire)--entegris, inc. (nasdaqgs: entg), a leader in specialty chemicals and advanced materials solutions for the microelectronics industry, today reported its financial results for the company’s second quarter ended june 29, 2019. second-quarter sales were $378.9 million, a decrease of 1% from the same quarter last year. gaap second-quarter net income was $124.0 million, or $0.91 per diluted share, which included $122 million net proceeds associated with the terminated versum transaction, $16.6 million of amortization of intangible assets, $2.2 million of restructuring costs, $1.3 million of integration costs, $1.2 million in deal costs mainly associated with the terminated versum transaction and a $700 thousand charge for fair value write-up of acquired inventory sold. non-gaap net income was $53.4 million and non-gaap earnings per diluted share was $0.39. bertrand loy, president and chief executive officer, said: "the second quarter was soft for the industry and was somewhat softer than anticipated for entegris. in spite of the pervasive uncertainty, we are seeing increased evidence that our business will be stronger in the second half of this year." mr. loy added: "entegris has never been better positioned and more relevant for our customers, as materials and contamination control are becoming increasingly critical to the industry roadmaps. as we’ve shown with the operating model improvements announced today and the recent acquisition of mpd, we are continually assessing and dynamically managing our business model and portfolio to drive growth and returns." quarterly financial results summary (in thousands, except per share data) gaap results q2 2019 q2 2018 q1 2019 net sales $378,874 $383,059 $391,047 operating income $54,909 $74,933 $47,491 operating margin 14.5% 19.6% 12.1% net income $123,997 $54,349 $32,658 diluted earnings per share (eps) $0.91 $0.38 $0.24 non-gaap results non-gaap adjusted operating income $76,793 $93,473 $92,180 non-gaap adjusted operating margin 20.3% 24.4% 23.6% non-gaap net income $53,432 $69,835 $67,894 non-gaap eps $0.39 $0.49 $0.50 third-quarter outlook for the third quarter ending september 28, 2019, the company expects sales of $385 million to $400 million, net income of $40 million to $46 million and net income per diluted share between $0.29 and $0.34. on a non-gaap basis, eps is expected to range from $0.42 to $0.47 per diluted share, which reflects net income on a non-gaap basis in the range of $57 million to $64 million, which is adjusted for expected amortization and restructuring & integration expenses of approximately $14.2 million (or $0.08 per share) and $8.6 million (or approximately $0.05 per share). organizational changes entegris is implementing operating model improvements that will enable the company to be more responsive to customers, increase competitiveness, allow for scalable growth and result in significant cost savings. efficiencies gained by these changes are expected to result in more than $20 million in annualized cost savings. these actions will largely be in place by the beginning of the fourth quarter this year. segment results the company reports its results in the following segments: specialty chemicals and engineered materials (scem): scem provides high-performance and high-purity process chemistries, gases and materials, as well as safe and efficient delivery systems to support semiconductor and other advanced manufacturing processes. microcontamination control (mc): mc solutions purify critical liquid chemistries and gases used in semiconductor manufacturing processes and other high-technology industries. advanced materials handling (amh): amh develops solutions to monitor, protect, transport, and deliver critical liquid chemistries, wafers, and substrates for a broad set of applications in the semiconductor industry and other high-technology industries. change in inter-segment reporting in the first quarter of 2019, the company changed its definition of segment profit to include inter-segment sales. the company updated its recognition of inter-segment sales to recognize the revenue and profit associated with products and components produced in one segment and supplied to another, before being sold to the ultimate end customer. the company accounts for inter-segment sales and transfers as if the sales or transfers were to third parties, that is, at approximate market prices. prior quarter information was recast to reflect the change in the company’s definition of segment profit. second-quarter results conference call details entegris will hold a conference call to discuss its results for the second quarter on thursday, july 25, 2019, at 9:00 a.m. eastern time. participants should dial 800-458-4121 or +1 323-794-2093, referencing confirmation code 9712936. participants are asked to dial in 5 to 10 minutes prior to the start of the call. for a replay of the call, please click here using passcode 9712936. the replay will be available starting at 12:00 p.m. et on thursday, july 25 through september 7, 2019 at 12:00 p.m. et. the call can also be accessed live and on-demand from the entegris website. point your web browser to http://investor.entegris.com/events.cfm and follow the link to the webcast. the on-demand playback will be available for six weeks after the conclusion of the teleconference. management’s slide presentation concerning the results for the second quarter, which may be referred to during the call, will be posted on the investor relations section of www.entegris.com thursday morning before the call. about entegris entegris is a leader in specialty chemicals and advanced materials solutions for the microelectronics industry and other high-tech industries. entegris is iso 9001 certified and has manufacturing, customer service and/or research facilities in the united states, canada, china, france, germany, israel, japan, malaysia, singapore, south korea and taiwan. additional information can be found at www.entegris.com. non-gaap information the company’s condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the united states (gaap). adjusted ebitda, adjusted gross profit, adjusted segment profit, and adjusted operating income together with related measures thereof, and non-gaap eps, are considered “non-gaap financial measures” under the rules and regulations of the securities and exchange commission. the presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with gaap. the company uses these non-gaap financial measures for financial and operational decision-making, as a means to evaluate period-to-period comparisons, as well as comparisons to our competitors' operating results. management believes that these non-gaap financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain items that may not be indicative of our recurring business operating results, such as amortization, depreciation and discrete cash charges that are infrequent in nature. we believe that both management and investors benefit from referring to these non-gaap financial measures in assessing and understanding our results and performance and when planning, forecasting, and analyzing future periods. we believe these non-gaap financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze our business. the reconciliations of gaap net income (loss) to adjusted operating income and adjusted ebitda, gaap net income (loss) to non-gaap earnings per share, gaap gross profit to adjusted gross profit and gaap segment profit to adjusted operating income are included elsewhere in this release. forward-looking statements this press release contains forward-looking statements within the meaning of the private securities litigation reform act of 1995. the words “believe,” “expect,” “anticipate,” “intends,” “estimate,” “forecast,” “project,” “should,” “may,” “will,” “would” or the negative thereof and similar expressions are intended to identify such forward-looking statements. these forward-looking statements include statements related to future period guidance; future sales, net income, net income per diluted share, non-gaap eps, non-gaap net income, expenses and other financial metrics; our performance relative to our markets; the impact, financial or otherwise, of any organizational changes; market and technology trends; the development of new products and the success of their introductions; company's capital allocation strategy, which may be modified at any time for any reason, including share repurchases, dividends, debt repayments and potential acquisitions; the effect of the tax cuts and jobs act on our capital allocation strategy; the impact of the acquisitions we have made and commercial partnerships we have established; our ability to execute on our strategies; and other matters. these statements involve risks and uncertainties, and actual results may differ. these risks and uncertainties include, but are not limited to, weakening of global and/or regional economic conditions, generally or specifically in the semiconductor industry, which could decrease the demand for our products and solutions; our ability to meet rapid demand shifts; our ability to continue technological innovation and introduce new products to meet our customers' rapidly changing requirements; our concentrated customer base; our ability to identify, effect and integrate acquisitions, joint ventures or other transactions; our ability to effectively implement any organizational changes; our ability to protect and enforce intellectual property rights; operational, political and legal risks of our international operations; our dependence on sole source and limited source suppliers; the increasing complexity of certain manufacturing processes; raw material shortages and price increases; changes in government regulations of the countries in which we operate; fluctuation of currency exchange rates; fluctuations in the market price of entegris’ stock; the level of, and obligations associated with, our indebtedness; and other risk factors and additional information described in our filings with the securities and exchange commission, including under the heading “risks factors" in item 1a of our annual report on form 10-k for the fiscal year ended december 31, 2018, filed on february 11, 2019, and in our other periodic filings. the company assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. entegris, inc. and subsidiaries condensed consolidated statements of operations (in thousands, except per share data) (unaudited) three months ended june 29, 2019 june 30, 2018 march 30, 2019 net sales $ 378,874 $ 383,059 $ 391,047 cost of sales 212,600 200,681 213,654 gross profit 166,274 182,378 177,393 selling, general and administrative expenses 64,150 65,200 82,254 engineering, research and development expenses 30,624 30,231 28,991 amortization of intangible assets 16,591 12,014 18,657 operating income 54,909 74,933 47,491 interest expense, net 9,692 6,925 9,659 other (income) expense, net (122,015 ) 3,877 (248 ) income before income tax expense 167,232 64,131 38,080 income tax expense 43,235 9,782 5,422 net income $ 123,997 $ 54,349 $ 32,658 basic net income per common share: $ 0.92 $ 0.38 $ 0.24 diluted net income per common share: $ 0.91 $ 0.38 $ 0.24 weighted average shares outstanding: basic 135,378 141,701 135,299 diluted 136,581 143,238 136,692 entegris, inc. and subsidiaries condensed consolidated statements of operations (in thousands, except per share data) (unaudited) six months ended june 29, 2019 june 30, 2018 net sales $ 769,921 $ 750,258 cost of sales 426,254 391,883 gross profit 343,667 358,375 selling, general and administrative expenses 146,404 123,469 engineering, research and development expenses 59,615 57,817 amortization of intangible assets 35,248 23,683 operating income 102,400 153,406 interest expense, net 19,351 14,151 other (income) expense, net (122,263 ) 4,016 income before income tax expense 205,312 135,239 income tax expense 48,657 23,328 net income $ 156,655 $ 111,911 basic net income per common share: $ 1.16 $ 0.79 diluted net income per common share: $ 1.15 $ 0.78 weighted average shares outstanding: basic 135,338 141,641 diluted 136,637 143,445 entegris, inc. and subsidiaries condensed consolidated balance sheets (in thousands) (unaudited) june 29, 2019 december 31, 2018 assets cash and cash equivalents $ 521,382 $ 482,062 trade accounts and notes receivable, net 218,682 222,055 inventories, net 261,934 268,140 deferred tax charges and refundable income taxes 18,741 17,393 other current assets 27,715 39,688 total current assets 1,048,454 1,029,338 property, plant and equipment, net 445,254 419,529 right-of-use assets 44,176 — goodwill 583,328 550,202 intangible assets 266,425 295,687 deferred tax assets and other noncurrent tax assets 23,153 10,162 other 13,932 12,723 total assets $ 2,424,722 $ 2,317,641 liabilities and shareholders’ equity long-term debt, current maturities 4,000 4,000 accounts payable 56,986 93,055 accrued liabilities 117,783 141,020 income tax payable 36,371 31,593 total current liabilities 215,140 269,668 long-term debt, excluding current maturities 933,675 934,863 long-term lease liability 40,612 — other liabilities 132,746 101,085 shareholders’ equity 1,102,549 1,012,025 total liabilities and shareholders’ equity $ 2,424,722 $ 2,317,641 entegris, inc. and subsidiaries condensed consolidated statements of cash flows (in thousands) (unaudited) three months ended six months ended june 29, 2019 june 30, 2018 june 29, 2019 june 30, 2018 operating activities: net income $ 123,997 $ 54,349 $ 156,655 $ 111,911 adjustments to reconcile net income to net cash provided by operating activities: depreciation 18,596 15,802 35,317 31,699 amortization 16,591 12,014 35,248 23,683 stock-based compensation expense 4,936 4,429 9,589 8,557 other 446 2,101 6,140 2,883 changes in operating assets and liabilities: trade accounts and notes receivable 14,545 8,698 5,436 2,687 inventories 5,840 (7,517 ) 3,709 (22,472 ) accounts payable and accrued liabilities (7,688 ) 19,019 (52,707 ) (14,966 ) income taxes payable and refundable income taxes 58,264 (14,207 ) 15,391 (7,515 ) other (4,626 ) 3,601 13,585 639 net cash provided by operating activities 230,901 98,289 228,363 137,106 investing activities: acquisition of property and equipment (25,636 ) (26,390 ) (60,101 ) (47,437 ) acquisition of businesses, net of cash acquired 522 (342,569 ) (49,267 ) (380,225 ) other — 1,759 197 1,905 net cash used in investing activities (25,114 ) (367,200 ) (109,171 ) (425,757 ) financing activities: payments on long-term debt (1,000 ) (2,000 ) (2,000 ) (27,000 ) issuance of common stock — 2,554 917 3,027 taxes paid related to net share settlement of equity awards (574 ) (290 ) (8,301 ) (14,413 ) repurchase and retirement of common stock (15,000 ) (10,000 ) (50,321 ) (20,000 ) dividend payments (9,494 ) (9,919 ) (18,964 ) (19,802 ) other (247 ) 1,750 (497 ) 1,504 net cash used in financing activities (26,315 ) (17,905 ) (79,166 ) (76,684 ) effect of exchange rate changes on cash (450 ) (6,314 ) (706 ) (2,967 ) increase (decrease) in cash and cash equivalents 179,022 (293,130 ) 39,320 (368,302 ) cash and cash equivalents at beginning of period 342,360 550,236 482,062 625,408 cash and cash equivalents at end of period $ 521,382 $ 257,106 $ 521,382 $ 257,106 entegris, inc. and subsidiaries segment information (in thousands) (unaudited) note: in the first quarter of 2019, the company has changed its definition of segment profit to include inter-segment sales. the company updated its recognition of inter-segment sales to recognize the revenue and profit associated with products and components produced in one segment and supplied to another, before being sold to the ultimate end customer. the company accounts for inter-segment sales and transfers as if the sales or transfers were to third parties, that is, at approximate market prices. inter-segment sales are presented as an elimination below. prior quarter information was recast to reflect the change in the company’s definition of segment profit. three months ended six months ended net sales june 29, 2019 june 30, 2018 march 30, 2019 june 29, 2019 june 30, 2018 specialty chemicals and engineered materials $ 127,552 $ 134,336 $ 124,470 $ 252,022 $ 265,079 microcontamination control 150,185 124,937 157,706 307,891 243,860 advanced materials handling 107,515 130,572 116,064 223,579 254,650 inter-segment elimination (6,378 ) (6,786 ) (7,193 ) (13,571 ) (13,331 ) total net sales $ 378,874 $ 383,059 $ 391,047 $ 769,921 $ 750,258 three months ended six months ended segment profit june 29, 2019 june 30, 2018 march 30, 2019 june 29, 2019 june 30, 2018 specialty chemicals and engineered materials $ 24,000 $ 36,728 $ 24,431 $ 48,431 $ 67,649 microcontamination control 43,126 37,214 47,323 90,449 77,525 advanced materials handling 15,043 25,542 22,367 37,410 51,005 total segment profit 82,169 99,484 94,121 176,290 196,179 amortization of intangible assets 16,591 12,014 18,657 35,248 23,683 unallocated expenses 10,669 12,537 27,973 38,642 19,090 total operating income $ 54,909 $ 74,933 $ 47,491 $ 102,400 $ 153,406 entegris, inc. and subsidiaries reconciliation of gaap gross profit to adjusted gross profit (in thousands) (unaudited) three months ended six months ended june 29, 2019 june 30, 2018 march 30, 2019 june 29, 2019 june 30, 2018 net sales $ 378,874 $ 383,059 $ 391,047 $ 769,921 $ 750,258 gross profit-gaap $ 166,274 $ 182,378 $ 177,393 $ 343,667 $ 358,375 adjustments to gross profit: severance and restructuring costs — — 358 358 — charge for fair value mark-up of acquired inventory sold 695 208 2,155 2,850 208 adjusted gross profit $ 166,969 $ 182,586 $ 179,906 $ 346,875 $ 358,583 gross margin - as a % of net sales 43.9 % 47.6 % 45.4 % 44.6 % 47.8 % adjusted gross margin - as a % of net sales 44.1 % 47.7 % 46.0 % 45.1 % 47.8 % entegris, inc. and subsidiaries reconciliation of gaap segment profit to adjusted operating income (in thousands) (unaudited) note: in the first quarter of 2019, the company has changed its definition of segment profit to include inter-segment sales. the company updated its recognition of inter-segment sales to recognize the revenue and profit associated with products and components produced in one segment and supplied to another, before being sold to the ultimate end customer. the company accounts for inter-segment sales and transfers as if the sales or transfers were to third parties, that is, at approximate market prices. prior quarter information was recast to reflect the change in the company’s definition of segment profit. three months ended six months ended segment profit-gaap june 29, 2019 june 30, 2018 march 30, 2019 june 29, 2019 june 30, 2018 specialty chemicals and engineered materials $ 24,000 $ 36,728 $ 24,431 $ 48,431 $ 67,649 microcontamination control 43,126 37,214 47,323 90,449 77,525 advanced materials handling 15,043 25,542 22,367 37,410 51,005 total segment profit 82,169 99,484 94,121 176,290 196,179 amortization of intangible assets 16,591 12,014 18,657 35,248 23,683 unallocated expenses 10,669 12,537 27,973 38,642 19,090 total operating income $ 54,909 $ 74,933 $ 47,491 $ 102,400 $ 153,406 three months ended six months ended adjusted segment profit june 29, 2019 june 30, 2018 march 30, 2019 june 29, 2019 june 30, 2018 specialty chemicals and engineered materials1 $ 24,695 $ 36,728 $ 25,070 $ 49,765 $ 67,649 microcontamination control 2 43,126 37,422 50,082 93,208 77,733 advanced materials handling 3 15,043 25,542 22,945 37,988 51,005 total adjusted segment profit 82,864 99,692 98,097 180,961 196,387 amortization of intangible assets4 — — — — — unallocated expenses5 6,071 6,219 5,917 11,988 12,772 total adjusted operating income $ 76,793 $ 93,473 $ 92,180 $ 168,973 $ 183,615 1 adjusted segment profit for specialty chemicals and engineered materials for the three months ended june 29, 2019, three months ended march 30, 2019 and for the six months ended june 29, 2019 excludes charges for fair value mark-up of acquired inventory sold of $695, $120 and $815, respectively. the three months ended march 30, 2019 and six months ended june 29, 2019 excludes charges for severance and restructuring of $519. 2 adjusted segment profit for microcontamination control for the three and six months ended june 30, 2018, and the three months march 30, 2019 and six months ended june 29, 2019 excludes charges for fair value mark-up of acquired inventory sold of $208 and $2,035, respectively. adjusted segment profit for three months ended march 30, 2019 and six months ended june 29, 2019 excludes charges for severance and restructuring of $724. 3adjusted segment profit for advanced materials handling for the three months ended march 30, 2019 and six months ended june 29, 2019 excludes charges for severance and restructuring of $578, respectively. 4 adjusted amortization of intangible assets excludes amortization expense of $16,591, $12,014 and $18,657 for the three months ended june 29, 2019, june 30, 2018 and march 30, 2019 respectively and $35,248 and $23,683 for the six months ended june 29, 2019 and june 30, 2018, respectively. 5 adjusted unallocated expenses for the three months ended june 29, 2019, june 30, 2018, and march 30, 2019 excludes deal and integration expenses of $2,428, $6,318, and $22,056. adjusted unallocated expenses for the six months ended june 29, 2019 and june 30, 2018 excludes deal and integration expenses of $24,484 and $6,318. adjusted unallocated expenses for the three and six months ended june 29, 2019 excludes restructuring charges of $2,170. entegris, inc. and subsidiaries reconciliation of gaap net income to adjusted operating income and adjusted ebitda (in thousands) (unaudited) three months ended six months ended june 29, 2019 june 30, 2018 march 30, 2019 june 29, 2019 june 30, 2018 net sales $ 378,874 $ 383,059 $ 391,047 $ 769,921 $ 750,258 net income $ 123,997 $ 54,349 $ 32,658 $ 156,655 $ 111,911 adjustments to net income: income tax expense 43,235 9,782 5,422 48,657 23,328 interest expense, net 9,692 6,925 9,659 19,351 14,151 other (income) expense, net (122,015 ) 3,877 (248 ) (122,263 ) 4,016 gaap - operating income 54,909 74,933 47,491 102,400 153,406 charge for fair value write-up of acquired inventory sold 695 208 2,155 2,850 208 deal costs 1,164 5,121 19,136 20,300 5,121 integration costs 1,264 1,197 2,920 4,184 1,197 severance and restructuring costs 2,170 — 1,821 3,991 — amortization of intangible assets 16,591 12,014 18,657 35,248 23,683 adjusted operating income 76,793 93,473 92,180 168,973 183,615 depreciation 18,596 15,802 16,721 35,317 31,699 adjusted ebitda $ 95,389 $ 109,275 $ 108,901 $ 204,290 $ 215,314 adjusted operating margin 20.3 % 24.4 % 23.6 % 21.9 % 24.5 % adjusted ebitda - as a % of net sales 25.2 % 28.5 % 27.8 % 26.5 % 28.7 % entegris, inc. and subsidiaries reconciliation of gaap net income to non-gaap earnings per share (in thousands, except per share data) (unaudited) three months ended six months ended june 29, 2019 june 30, 2018 march 30, 2019 june 29, 2019 june 30, 2018 gaap net income $ 123,997 $ 54,349 $ 32,658 $ 156,655 $ 111,911 adjustments to net income: charge for fair value write-up of acquired inventory sold 695 208 2,155 2,850 208 deal costs 1,164 5,121 19,547 20,711 5,121 integration costs 1,264 1,197 2,920 4,184 1,197 severance and restructuring costs 2,170 — 1,821 3,991 — versum termination fee, net (122,000 ) — — (122,000 ) — amortization of intangible assets 16,591 12,014 18,657 35,248 23,683 tax effect of legal entity restructuring 9,398 — — 9,398 — tax effect of adjustments to net income and discrete items1 20,153 (3,702 ) (9,864 ) 10,289 (6,412 ) tax effect of tax cuts and jobs act — 648 — — 2,142 non-gaap net income $ 53,432 $ 69,835 $ 67,894 $ 121,326 $ 137,850 diluted earnings per common share $ 0.91 $ 0.38 $ 0.24 $ 1.15 $ 0.78 effect of adjustments to net income $ (0.52 ) $ 0.11 $ 0.26 $ (0.26 ) $ 0.18 diluted non-gaap earnings per common share $ 0.39 $ 0.49 $ 0.50 $ 0.89 $ 0.96 1the tax effect of pre-tax adjustments to net income was calculated using the applicable marginal tax rate during the respective years.
