10-QPeriod: Q1 FY2019

ENTEGRIS INC Quarterly Report for Q1 Ended Mar 30, 2019

Filed April 25, 2019For Securities:ENTG

Summary

Entegris, Inc. (ENTG) reported net sales of $391.0 million for the first quarter of 2019, a 6% increase year-over-year, primarily driven by contributions from recent acquisitions. However, excluding acquisition impacts and unfavorable foreign currency translation, organic sales decreased by 2% due to softening demand in the semiconductor market. Gross profit saw a slight increase to $177.4 million, but the gross margin declined to 45.4% from 47.9% in the prior year, impacted by higher cost of sales from acquired inventories and less favorable sales mix. Net income significantly decreased to $32.7 million ($0.24 per diluted share) compared to $57.6 million ($0.40 per diluted share) in the first quarter of 2018. This decline is largely attributable to a substantial increase in selling, general, and administrative (SG&A) expenses, which rose 41% to $82.3 million, driven by deal costs related to the terminated Versum merger and integration expenses from acquisitions. The company also incurred higher amortization expenses due to recent acquisitions. Despite the lower profitability, Entegris has a solid liquidity position with $342.4 million in cash and cash equivalents and access to a $300 million revolving credit facility.

Financial Highlights

55 data points
Beta

Revenue

$391.05M

45.4% Gross Margin

Net Income

$32.66M

8.4% Net Margin

EPS (Diluted)

$0.24

Total Assets

$2.31B

Cash & Equivalents

$342.36M

Free Cash Flow

-$37.00M

Financial Statements
Beta
Revenue$391.05M
Cost of Revenue$213.65M
Gross Profit$177.39M
R&D Expenses$28.99M
SG&A Expenses$82.25M
Operating Income$47.49M
Interest Expense$10.88M
Net Income$32.66M
EPS (Basic)$0.24
EPS (Diluted)$0.24
Shares Outstanding (Basic)135.30M
Shares Outstanding (Diluted)136.69M

Key Highlights

  • 1Net sales increased 6% to $391.0 million, largely due to acquisitions, but organic sales declined 2% reflecting weaker semiconductor market demand.
  • 2Gross profit remained stable at $177.4 million, but gross margin compressed to 45.4% from 47.9% year-over-year.
  • 3Net income significantly decreased by 43% to $32.7 million, with diluted EPS falling to $0.24 from $0.40.
  • 4SG&A expenses surged 41% to $82.3 million, heavily influenced by merger termination fees and acquisition integration costs.
  • 5Amortization expense increased due to recent acquisitions, impacting operating income.
  • 6The company acquired Digital Specialty Chemicals (DSC) for approximately $64.5 million.
  • 7Entegris received a $140 million termination fee from Versum Materials after their merger agreement was terminated.

Frequently Asked Questions

The primary driver of the 6% increase in net sales to $391.0 million was the contribution from recent acquisitions, specifically the Digital Specialty Chemicals (DSC) acquisition. However, excluding the impact of acquisitions and foreign currency fluctuations, the company's organic sales actually decreased by 2% due to softening demand in the semiconductor market.

Net income decreased by 43% to $32.7 million, and diluted EPS fell to $0.24 from $0.40. This was mainly due to a substantial increase in selling, general, and administrative (SG&A) expenses, which rose 41% to $82.3 million. This surge in SG&A was driven by deal costs associated with the terminated merger with Versum Materials and integration expenses from other acquisitions. Higher amortization expenses from recent acquisitions also contributed to the lower profitability.

Entegris maintains a strong liquidity position. As of March 30, 2019, the company had $342.4 million in cash and cash equivalents. Additionally, it has access to a $300 million revolving credit facility and international credit facilities. The company believes these resources, combined with operating cash flow, will be sufficient to meet its working capital and investment requirements for at least the next twelve months.

The company acquired Digital Specialty Chemicals (DSC) for approximately $64.5 million. Separately, Entegris and Versum Materials announced a merger agreement in January 2019, but Versum later terminated the agreement to pursue a proposal from Merck KGaA. Entegris received a $140 million termination fee from Versum as a result.