10-QPeriod: Q3 FY2014

ENTEGRIS INC Quarterly Report for Q3 Ended Sep 27, 2014

Filed October 31, 2014For Securities:ENTG

Summary

Entegris Inc. (ENTG) reported its third-quarter and nine-month results for the period ending September 27, 2014. The company experienced a significant increase in net sales, primarily driven by the acquisition of ATMI, Inc. in April 2014. While sales saw substantial growth, the company reported a net loss for both the three and nine-month periods, largely due to acquisition-related costs, including amortization of intangible assets and integration expenses. The balance sheet reflects a substantial increase in assets, including goodwill and intangible assets, due to the ATMI acquisition, and a significant increase in long-term debt to fund the transaction. Investors should note the impact of the ATMI acquisition on financial results, including the increased debt load and the adjustments made to earnings for comparability purposes (non-GAAP measures). The company's operational performance was heavily influenced by the integration of ATMI, leading to higher operating expenses, including SG&A and R&D. Despite these integration costs and the reported net loss, the underlying operational performance, when adjusted for acquisition-related items, showed improved trends in gross margins and adjusted EBITDA. Looking ahead, Entegris anticipates continued integration efforts and potential for cost synergies, while also managing a substantial debt burden.

Financial Highlights

51 data points
Beta

Revenue

$273.05M

36.2% Gross Margin

Net Income

-$1.07M

-0.4% Net Margin

EPS (Diluted)

$-0.01

Total Assets

$1.80B

Cash & Equivalents

$390.49M

Free Cash Flow

$52.68M

Financial Statements
Beta
Revenue$273.05M
Cost of Revenue$174.31M
Gross Profit$98.74M
R&D Expenses$24.43M
SG&A Expenses$55.82M
Operating Income$5.37M
Interest Expense$10.44M
Net Income-$1.07M
EPS (Basic)$-0.01
EPS (Diluted)$-0.01
Shares Outstanding (Basic)139.48M
Shares Outstanding (Diluted)139.48M

Key Highlights

  • 1Significant increase in net sales driven by the acquisition of ATMI, Inc. (+$108.5M for Q3, +$183.2M for 9 months).
  • 2Reported a net loss of $1.1 million for the three months and $1.4 million for the nine months ended September 27, 2014, compared to net income in the prior year.
  • 3Total assets more than doubled to $1.795 billion from $875.3 million, largely due to the ATMI acquisition which added $324 million in goodwill and $296 million in intangible assets.
  • 4Long-term debt increased substantially to $792.8 million from $0 at the beginning of the year, primarily to finance the ATMI acquisition.
  • 5Gross margin decreased to 36.2% (Q3) and 37.5% (9 months) from 42.6% and 42.4% respectively, impacted by a $24.3 million (Q3) and $48.6 million (9 months) charge for the fair value write-up of acquired inventory sold.
  • 6Operating expenses (SG&A and R&D) increased significantly due to ATMI integration costs and operating expenses.
  • 7Cash flow from operations remained positive at $91.2 million for the nine months, but investing activities showed a substantial outflow of $851.5 million due to the ATMI acquisition.

Frequently Asked Questions

The primary driver was the acquisition of ATMI, Inc. on April 30, 2014. This significantly boosted net sales but also increased debt, expenses, and goodwill/intangible assets on the balance sheet.

The net loss was primarily due to significant acquisition-related costs associated with the ATMI acquisition. These included charges for the fair value write-up of acquired inventory sold, amortization of new intangible assets, and integration costs for combining the two companies. Additionally, the company incurred substantial interest expense from the debt taken on to finance the acquisition.

The ATMI acquisition dramatically increased total assets, goodwill, and intangible assets. It also led to a significant increase in long-term debt as the acquisition was largely financed through new debt issuance. Current assets and liabilities also grew due to the expanded operations.

The company is focused on integrating ATMI's operations and expects to realize cost synergies. While current GAAP results are impacted by acquisition-related costs and a net loss, management uses non-GAAP measures like Adjusted EBITDA and Adjusted Operating Income to highlight what they consider the underlying operational performance, which showed improvement in margins and profitability on an adjusted basis. However, the company will continue to manage its substantial debt load.