Q2 2020 Entegris Inc Earnings Call
And ladies and gentlemen, you're currently holding for into <unk> second quarter 2020 earnings release call at this time.
But.
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[music].
Please standby Robin again.
Good day, everyone and welcome to second quarter 2020 earnings release call today's call is being recorded.
It's time for opening remarks and introductions.
Over to Bill Seymour.
Investor Relations. Please go ahead Sir.
Good morning, everyone earlier today, we announced the financial results for our second quarter of 2020.
Before we begin I would like to remind listeners that our comments today.
Forward looking statements. These statements involve a number of risks and uncertainties and actual results could differ materially from those projected in the third what can state.
Additional information regarding these risks and uncertainties are contained in our most recent annual report and subsequent quarterly reports that we have filed with the yes you see.
Please refer to the information on the script disclaimer slide in the presentation.
On this call Weve also refer to non-GAAP financial measures as defined by the FTC and regulation G. You can find a reconciliation table in today's press release as well because on the Investor Relations page of our website at Integra Dot com.
On the call today are for Tron, while our CEO, Greg Greater Seattle before I turn the call over Cooper trying to get you Didnt see it reschedule, our 2020 investor and Analyst day, which will now take place on November 17th in New York, If we aren't able to olden meeting in person will be doing it virtually.
It will be sending out the event detailed and registration information in the near future with that I'll hand, the call overture trial.
Thank you Ben and good morning, everyone.
We just thought today with an update on the ongoing impact looked upon that make on our teams and operations I will then discuss how second quarter performance, especially in the context of our expectations going into the second quarter.
I would then review what we expect for the balance of the year.
Greg will follow with more details funnel guidance for the third quarter and then we would open the lines for questions.
It's early in the outbreak of dependent we have been very focused on keeping all teams safe.
We implemented rigorous safety measures all sites, including temperature checkers strict social distancing and contact waiting protocols mandatory mask usage and frequent disinfecting upcoming areas.
Despite grief interruptions in a few facilities early and accordingly.
Manufacturing and R&D facilities remained largely operational throughout the quarter.
We exited Q2, Oh Goldberg supply chain is operating smoothly and our manufacturing side, so all fully operational.
Oh safety facilities and manufacturing production teams have been truly payroll like India efforts to keep our teams safe and no business running during this challenging time.
Let me turn now to a second quarter performance that would start by saying that I am very pleased with our results, especially in light of the many operational risks and business in certain key we were facing coming into the second quarter.
The second quarter sales.
Sales grew 18% year on year, and 9% sequentially above our guidance.
Growth was strong across all three divisions core semiconductor markets as we benefited from said were no transitions primarily on our luxury customers.
Gross margins improved and our EBITDA was up 38% year over year.
Finally, non-GAAP, yet was well above our guidance up sequentially and up over 50% year on year.
Let me continue with the little bit more context, although second quarter performance.
When we provided guidance for the second quarter in late April our order book was that a record level, which gave us confidence despite all of the uncertainty in the market to guide to sequential increase in sales.
Ultimately our Q2 sales ended up significantly better than we expected demand drivers for this outperformance where the following.
First the accelerated demand for our leading edge solutions in advanced technology nodes. The theme you will hear more about.
Second increasing need for end to end contamination control solutions up and down to supply chain, including products like Ufs, two nanometer Taranto liquids filter and our high purity liquid containers.
And on top of dates the overall industry was better than we expected.
Finally, why did they were some modest inventory bids at some of <unk> five customers. We do not believe this was a significant driver.
What do you know very good quarter, considering what we expected going into the second quarter.
And truly a testament to the execution of our team.
Before moving on to the outlook I would like to highlight that a few weeks ago, we acquired the grille burden detriment technologies, neither in the design and production of high precision analytical instruments for CMP, slurries and formulated cleaning chemistries.
The acquisition of G.M.T.I.s trunks, and Entegris his position as the Premier supply you have yield enhancement solutions for the semiconductor market.
With the combination of G.M.T.I.s cutting edge measurement systems.
Politic sizing systems business the technology, we acquired in early 2018 as you remember.
And our extensive portfolio filtration and other contamination control traditions, we bring a complete suite of solutions that are lower customers too cheap plus its stability and up to my years into complex CMP environment.
We expect GMT <unk> to be slightly accretive to our non-GAAP EPS this year.
Looking ahead to the rest of 2020.
From an end market perspective, while there continues to be uncertainty around the impact to the pandemic, we're more optimistic about the remainder of the year.
The semi market appears to be holding up better than originally feared driven by the well documented strength in areas like data centers.
Oh, Gee laptops and gaming.
You know own business demand signals continued to be strong and our order book remains at record levels.
In addition, we expect to enjoy the benefit of new DPL lot positions.
New technology nodes in both the logic and memory, which will help us to stay in a market outperformance in the second half of the year.
But before do you have 2020, we now expect to achieve sales of approximately $1.75 billion to $1.8 billion up 10% to 13% compared to 2019.
In terms of your P.S., we expect to achieve <unk> 2020, non-GAAP bps in excess up two daughters and 35 cents.
Clearly we have skin in uncertain times, then a such Delta raised 12, you most significantly related to the ongoing impact well get pandemic to the global economy recovery.
And frankly, it seems hard to believe that descend the industry would remain relatively untouched by dependent Mike.
But having said that and to be clear, we have seen no real indication of a downturn in the semiconductor market for that matter you know business have you upcoming few months.
Furthermore, our advanced memory and logic customers continue to be very committed to that node transitions for the back half of the year and we expect this will drive strong demand for our next generation, but two years and advanced filtration solutions.
Looking further ahead, we continued to be very optimistic about the fundamentals of the industry and we expect that the semiconductor industry will come out of depend any more attractive than ever.
With enhanced drivers like digitalization and automation of the economy, providing strong catalyst for sustained secular growth.
I didn't take risk we have talked a lot about the growing importance of process materials and the two years purity under semiconductor performance and reliability.
We expect these two themes we'd be at the forefront of the semiconductor road map both in logic and memory for the next five to 10 years and we expect integrity is we'd be a clear beneficiary of these trends.
In conclusion, I am very pleased with the performance and the resilience of our business and I am optimistic about all prospects for the rest of 2020.
We feel very confident that out disciplined execution and strong liquidity will always to navigate this period of uncertainty why is continuing to invest in our future.
I also want to take a minute to think the entegris teams for their extraordinary where can that education without which none of this would have been possible.
Now, let me turn the call it two Greg Greg.
Thank you for Tron.
In my comments today, I'm going to cover our second quarter financial performance and our third quarter guidance.
The second quarter was an excellent quarter for Entegris.
Q2 sales of 448 million were above our guidance and were up 18% year over year and 9% sequentially.
This is driven primarily by our own market outperformance as broker under GAAP.
Q2, GAAP diluted EPS was 50 cents per share down 45% year over year and up 11% sequentially.
As a reminder, here to last year included into her Sim transaction termination fee, which was included in our GAAP numbers.
Non-GAAP bps 60 cents was also above our guidance range and up 54% year over year end up 9% sequentially.
Moving onto gross margin GAAP and non-GAAP gross margin were both 46% in Q2 versus our guidance of approximately 44%.
The higher than expected gross margin was driven principally by the higher sales volume and strong execution by our manufacturing and supply chain teens.
In addition, the amount of higher covered related logistics in three <unk> it was less than initially anticipated.
We expect gross margin to be approximately 46% both on a GAAP and non-GAAP basis in Q3 as higher volumes are offset by modest headwind and break and logistics costs.
GAAP operating expenses were approximately a 113 million in Q2 and included a total of approximately 17 million of non-GAAP items from amortization of intangible assets.
Restructuring and other car.
Non-GAAP operating expenses in Q2 were 95 million, which was above our guidance.
The primary driver of this was higher performance related compensation costs, driven by the improved annual out.
We expect GAAP operating expenses to be 109 to 111 million and non-GAAP operating expenses to be 95 to 97 million in the third quarter.
Due to GAAP operating income was 95 million or 21.1% of revenue and non-GAAP operating income was 111 million or 24.7% of revenue.
Adjusted EBITDA was approximately 131 million or 29.3% of revenue.
Our GAAP tax rate was approximately 17% and our non-GAAP tax rate was 18% for the quarter.
The rate was slightly lower than expected due to a discrete benefit related to stock based compensation.
The full year 2020, we now expect both our GAAP and non-GAAP tax rate to be 18% to 19%, which implies a quarterly rate of approximately 20% for Q3 in Q4.
Turning to our performance by Division.
Due to sales of 146 million Foresi were up 15% year over year, primarily driven by advanced deposition materials cleaning chemistries and the impact of acquisitions, we growth was offset by declines in non semi related sales, particularly.
In end markets that were most impacted by the end of <unk> adjusted operating margin for SDM, 22% was up over 200 basis points year over year.
The year over year increase in operating margin was driven primarily by higher higher volume. The 110 basis point sequential decline in margin was driven primarily by higher compensation cost I referred to earlier.
Due to sales of 184 million for M.C. were up 22% from last year and up 15% sequentially.
On a year over year basis liquid filtration gas filtration and the impact of the eight now acquisition drove the sales growth.
The sequential sales increase was driven by liquid filtration and gas filtration and verification.
Adjusted operating margin for M.C. was 34.1% up over 500 basis points year over year end up 200 basis points sequentially. Both the year over year and sequential margin increase was driven primarily by higher volumes and favorable product mix.
Due to sales Graham age of 126 million was up 18% versus last year and up 9% sequentially.
Year over year sales increase was primarily driven by high purity liquid containers and wafer handling products.
The sequential sales increase was also primarily driven by high purity liquid packaging products.
Adjusted operating margin for Am age.
Was 18.7%.
Almost 500 basis points year over year to year over year and sequential margin increase was driven by the higher sales volume and solid cost management.
Cash flow from operations for the quarter was 130 million free cash flow was 106 million.
Capex for the quarter was 24 million, we continue to expect to spend approximately 120 million in capex in 2020 related to ongoing investments in support of our new product introductions as well as capacity expansions.
During Q2, we used approximately 11 million for quarterly dividend.
As previously indicated we suspended our share repurchases in March and absent a major dislocation in the equity market or greater clarity in the economic output, we would not expect to buy any stock through the balance of the year.
As a reminder, last quarter in a favorable debt market, we took the opportunity to increase our flexibility and further strengthened our balance sheet and liquidity position.
We completed a 400 million dollar senior unsecured notes offering and use the proceeds to repay the approximately 140 million outstanding balance on our revolver and drew pay 150 million of our term loan.
We would expect to repay an additional 100 million over the term loan in the next couple of quarters.
An item of note for your modeling with the addition of the new no. We are expecting interest expense, the approximately 12.5 million per quarter going for free.
Turning to our outlook for tier three.
Expects sales to range from $450 million to $475 million.
We expect gaffey, yes to be 51 to 57 cents per share.
Non-GAAP, yeah, it'd be 60 to 66 cents per share.
In summary, we were extremely pleased with our performance year to date.
During the second quarter, our revenue EBITDA and EPS were at record levels.
Our team showed incredible commitment and executed extremely well in a difficult environment.
Demand for our advanced products continue to salary as the semiconductor industry transition to new nodes, requiring greater clarity and increased materials intensity.
And finally, we continue to have confidence in the strength of our platform importance of our value proposition the quality of our execution and our strong balance sheet as we enter the back end of the year.
Operator, we'll now open up for questions.
Thank you and ladies and gentlemen, if you'd like to ask your question at this time leasing only pressing star one on your telephone keypad and if you are using speakerphone. Please make sure. Your line is turned off to layer signal treat your equipment again starwood asking a question.
Well move into our first question from some Shia with actually see Toshiya Hari with Goldman Sachs. Please go ahead.
Good morning, and congrats on the strong execution.
That's what I was hoping you could update us on how you're thinking about.
Broader market trends, both in terms of industry wafer starts as low capex.
I forget if you gave a number last quarter, but how you're thinking about this two buckets for the entirety of spending 20.
And what level of outperformance or are you assuming.
In both those markets for Integra, specifically and I guess, what are the key drivers of the of the out performance in.
And both are studying or with a start businesses. Those are kept that system that I've got a follow up.
[laughter].
Good morning course, yeah, yeah. So that's another question, so I'm going to try to.
Remember them, all and take them one by one but.
Generally speaking first of or.
The market.
Going into.
To behave weighted was very consistent with a particular assumptions to a number on a quarter core we decided that we were expecting strength in advanced logic.
The team has seen evidence of wafer starts.
Memory.
And then right activity.
Demand in mainstream fives and pulled to maintain fabs.
He said that.
Probably would be under these application dependent.
And pricing the second quarter played out pretty much in line with those operating assumptions and I would expect those trends to continue for the balance of the year. So what do you think about.
Oh 40 or guidance.
You know, we especially expect.
Paul to the market.
On a mixed of units and Capex given stands to be.
Down to the mid single digits for 2020.
We expect.
Yes acquisition instead, we have already completed antibody.
Jim guidance contribute trucks, and the pain points of growth.
2020.
And then the bad and studies the amounts to a very significant organic growth in excess of the bucket and that it.
Primarily driven by the.
No transitions that we've experienced in logic in but we expect to see in backend of the year in memory.
And the other thing is again, we expect more wafers to transition to duals advance nodes.
And as you know like those advance nodes, we are greater integrity content, but wait for them. So all of those factors with compounding.
And and I think again, we that's one of the reasons why we are optimistic about backend.
That's great. Thank you and then as a quick follow up.
We're taught in your prepared remarks, he talked about.
There are being some signs of your OEM customers building, a little bit little bit of inventory.
That's the question on just customer purchasing patterns and what they're seeing in the market today.
I suppose given you know kogan 19, and maybe to a lesser extent, but U.S. trade U.S. and trying to treat tension. There is an incentive on the part of your customers to be a little bit more you know I guess prudent and procuring materials.
Materials and components, but that is that a concern for you at all so she we'd be worried about you know correction driven by inventory dynamic into the second half for some time in 2021 or have you mentioned in his prepared remarks, it's putting it pretty minimal from from somebody you know and what you're seeing in the market. Thank you.
Yes. It was a said to not be better bucket, there will likely an innovative venture needed by our customers, but nothing really until you get into a performance in the second quarter.
Thank you.
We'll next go to Sidney Ho with Deutsche Bank. Please go ahead.
Okay, Thanks, and congrats on a very solid 1000 guide.
My first question is last quarter it yeah.
Okay Yeah.
Yes, I think you'll see the demands a drop off sometimes in the summer in your comments today suggest that that's probably not going to happen given like my Mcknight Mascus right. Your full year guidance, what seems to suggest Q4 revenue down maybe a couple percentage points just want to get your view on how we should reconcile the stream from your business and.
The industry.
Versus maybe the macro headlines, especially on.
Consumer spending one maybe certain parts of the enterprise spending and he took the to the previous question about some of these inventory potential inventory built.
Yes, so as we are entering Q3 the.
Reality that we're facing a very committed to where we were spending a few months ago. We.
Our new came at a very very strong backlog record that happens once again.
Booking momentum continues to be very very strong.
There was mentioning there's no sign of.
Incineration in advanced logic.
We continue to hear from older for memory customers that we remain committed to doing migrations in the back end of the year and we ever it ought to design wins attached to those.
That's a long way of saying that we believe that.
Just to be conditions would be favor boards integration in the back end of video.
Doesn't mean that.
The uncertainty isn't tied to go under the blend to consistency.
About the timing Wade phase of economies.
Recovery and how that could impact some segments of the semiconductor industry.
Let's face it Cadiz 19.
He did we would have to.
We live with for several quarters, whether we like it or not.
But it's been done Dominion reasons first to be optimistic I think that it is becoming increasingly up he is that long term fundamentals in the semiconductor industry are.
Then promising.
As we benefit from greater automation of economy digitalization of felt like.
And in fact, what we're seeing this year is probably.
Smartfresh in some degradation real time.
But this is and I think that's that's huge swing I think this is particularly in driving into shorter than when demand for high performance others gaming Fiveg.
Which really drives leading edge sheep consumption and that's a positive for entegris obviously.
Great. That's very helpful. My follow up question is.
Looking back in the last quarter Q2, the sequential revenue growth was a lot more skewed towards Uh huh.
Filter I'd love to see.
See side of things.
[laughter] specialty chemicals had is up only marginally how should we read into this difference in growth rate I recall that pass the time said that some of the FCM products into the slip more real time demand because there's no reason from customers to buy had just wanted to get your thoughts on on the difference between the two seconds.
I think it's always it's always vendors to to move CAD.
Trends on a quarterly basis was pretty foot to cut down on a year to date basis, and if you do that you would see that.
The performance of waterfall two divisions as being very.
Very strong and consistent with what you would expect they see them.
On a.
On a you know it's been growing at about.
<unk> percent.
Microcontamination won't.
On a for the first half a year is up 11%. So again I think on performance across across the board.
Pretty much in line with our expectations.
Great. Thank you very much.
Our next question will come from Chris Kapsch with.
<unk> <unk> markets. Please go ahead.
Yeah. Good morning. Thank you for taking my question. So one was the follow up on the generally positive.
Comments about second half outlook and that.
Benefiting from among other things just the a continued node transitions I'm just wondering if you can elaborate a little bit on.
Where you're most excited there I think you.
In a response and another question you indicated that.
In the second half that might be more about the node transitions in memory be Debbie they logic and foundry, but can you just.
Elaborate a little bit on on any specifics that you mentioned staples and benefit you're a topline strength from the transition.
Yes, that's the way we think about the second half is that.
We intend to consolidate the progress that we've made in logic and foundry.
And once we started on our opportunities in memory Endeavouring, there would be two way.
Would play out the first one is we have a lot of new DQ our wins.
On the.
No one to accelerate indexes.
And then the other way.
Net or you would be a big driver for US is that they would mean natural transition of more wafer starts to be advanced memory architecture to just to put that in perspective. So you can think about treating down and jets, we do not for a second in 2019 less than 20% of the wafers.
Were produced at 96, though higher.
2020, we expect that more than 50% of the wafers.
I would be for use at 96, Ohio, where we have high incidence content per wafer. So that gives you an idea.
Meaning for those drivers wouldn't need for us we memory in the back end up there and frankly going forward.
I'm going to add to that and provide the innovative product context to the back end of the yeah. We expect.
He quit can trade show in the position, but two years.
Oh I try to keep drums.
And our cost of goods side, and that's been prioritized the major contributors.
Growth in the Bakken.
That's helpful. Thank goodness the follow up would be maybe a little nuances around the and H. segment, which probably doesn't get as much attention to the other two but you had mentioned the strong your year over year growth. There was associated with high purity liquid packaging product I'm, just curious to get a little bit more color you are you.
Does that imply that the strength is more focus in say photo resist versus say deposition clean other filtration products and as it did isn't really about system and consumables or is there more strengthened and.
Consumables that I'm curious because I'm just wondering if this trend where particularly with so to read the.
Chip, making customers are getting or no implementing retrofitting their legacy nodes with filtration system to get after late and Deepak I'm wondering if that's still a trend that's benefiting your your business in that segment specifically thanks.
So we we expected trends.
The Jordan, you're describing about retrofitting older Fabs.
To achieve greater reliability of Oh can chipsets to be affected down the road eat it was not a factor.
And I don't expect that to be effective for the balance of the or what do we go in Q2, and what we expect to continue to see in the back end of the yup.
It is strong demand for Oh, how should keep containers.
That are now required across a broad range of can streets puts or is it being on one of them by the noted.
No sort of burns sentry gases and so on do require more than packaging solutions.
<unk>.
Most tweens in transportation standards.
So badly consumed over product.
And I think the success of that product nine.
It is.
Really transforming frankly, the profile of age will lead to transform over or and over time. The pool Fidopharm age. We also saw some some good performance and expect that to continue from from PSS that this is required.
In Q1 or 2018.
Oh I noticed that it was offset by.
Weakness in data storage.
And frankly, some weakness in Q2 of whom.
Basins, as well, which is a lumpy business. It was just coming off.
Record quarters in Q3 Q4 last year in Q1 this year as many of our customers gearing up 4.0 transition. So overall it to your point of from they May just had a very very strong.
First half of the year and I think they're on track to Denver domestic performance this year.
That's helpful color. Thank you and congrats on kudos on the execution and strong performance.
Thank you.
Thank you we'll next go to Patrick Ho Stifel. Please go ahead.
Oh, Thank you very much and congrats on a really nice quarter.
We're trying to maybe first off a meeting on a qualitative business you talked about no transition is in the shift between Threed NAND as you go to 90, plus layers and the industry continues to move to 220 plus layers can you qualitatively talk about.
Not only be increasing wafer starts set at driving allowed the business there, but the types of new materials. Some of the process wins, how much more I guess.
A new products concentrations capital intensity are you seeing as you migrate.
She those higher layer counts.
So so Patrick.
We have seen significant increases in mid two years intensity adores more than.
Maybe not in particular.
We have.
Mentioned in the past it position the Toyota's selective action can swing.
New doping process is and those would be.
Opportunity at the fabric that we have also called out.
No coding solutions for Chembio components in etch tools.
So David Wallis Irene.
Opportunities on the material side for us both publicly but also at all yet.
And as you know as.
The news in memory continued to add to the accounts.
The pictures.
President and fall into contamination and that opens up the dogs, who you know maybe new opportunities on the situation platforms as well so memory.
The story because he was not a big area focus for integrity.
But this is changing rapidly and I think memories could there be providing many many opportunities.
For us to.
To contribute value on the wafer.
Great that's helpful and maybe as my follow up question I know, if they try and you bench.
Not particularly for year Microcontamination control business that you want to provide end to end solutions for them.
Chemical suppliers, all the way through the fab.
Can you.
Described the business opportunities on the chemical suppliers side, and how that's contributing to the growth youve into purity requirements that but they also had and how you can enhance people will yield process.
For the full year semiconductor customers.
<unk>.
Right. So so this is the thing that has served us really really well.
Obviously with the most stringent.
During two requirements and advanced finance it is that treating policy birds and expect to intercept older the contaminants of concern.
Five environment so increasingly.
Defense that or are they seeing new kids and.
Requirements on death, but chemical suppliers.
Which in turn or also pacing shouldn't get requirements on deficit suppliers. So the whole ecosystems now that's the component, which is more stringent requirements and what do you mean since that we are seeing.
And.
You know.
The adoption of more contrition pools.
The supply nine doors into is <unk>.
Looking to be more and more things at every node transitions and the frequency of replacement of goes into has continued to increase as well so.
That is what has been driving.
You know the fast growth you know so if market for advanced liquid senses.
And as I was mentioning in a in a previous comments into so not only beneficiary of that we have some of the best I too would team containers for different types of Chemistries.
And of course, we have a leadership position in fluid handling.
Solutions intensive order them.
Looking at typing that would be involved but chemical manufacturing groups.
Great. Thank you very much.
Good.
Thank you all next move to Amanda Scarnati with Citi. Please go ahead. Your line is open.
Hi, good morning.
First question for Greg like you mentioned that Capex is still expected to be around 120 million this year, which implies a little bit of a step up in a second half can you talk about sort of what you're seeing there and any sort of driven by capacity constraints.
And markets in sort of expected Capex plans.
In general I would say its expected capex plans that we have I mean, some of the spending we're doing this capacity related talked a lot about what our high purity drum business, Brent or are high purity liquid packaging business.
Together, you know significant capital expenditure going on in Korea for instance.
Band are.
Liquid packaging capacity, what I would say the balance of it is.
That's probably the largest project we've got we've got a project we talked a lot about deposition materials, we've got a project.
In the queue to expand their capacity in deposition materials that are facility here in the U.S. So.
It's a combination but it's not in there, but there really hasn't been any significant shifts from when we started the year in terms of where we expect to spend capital.
[noise].
Number two I was just walk a little bit wash triaging focused on M&A, you just talk a little bit first about a couple of measurement acquisition and in fact, more sorry memories, okay, well I'm object okay.
As you look at M&A going forward and you know it seems that your pitiful well that one smaller acquisitions, maybe kicked off a portfolio that you have got with her so a definite went way to look at M&A going forward should get smaller acquisitions I thought the portfolio or you know is there any sort of yeah desire.
Or something a little bit like at this point.
Right, So I'm going to let me thought with.
Weve description of Jintai, but think about G.M.T.I.s the twin.
Rather for PSS, the company that we acquired and.
2018, some of the sites they complimentary begging for positions.
Same applications and as you know PSS.
Was a great success and we intend to apply the same approach.
As we integrate GMP I.
Leveraging over distribution platforms in producing more than what you see systems I think the recipe would work.
According to what it was in <unk>. So what is the anti now we have we'd be extended.
Our offering.
To be in a position to provide doors and and solutions.
We were talking about either previous question offering now includes.
Real control public concisely monitoring.
Then situation.
And now with Jintai more precision concentration monitoring capabilities as well and definitely put some segways.
He leading position as the supply of used enhancing city sinful CMP and what it shouldn't be.
It equally processes.
So again just expanding.
On the set of capabilities that we can offer indoors very complex processes.
We're very excited about the engine.
More broadly Ah yes. It is an example of the types of smaller deals that you can expect us to make I quite an <unk> company complementary with what we do.
We continue to expect.
Im fine use that can be larger than this.
But as you know you know, we don't control Actionability of those some of those mid sized transactions, but.
So we have you ever which by gone and hopefully we can continue to be active on given at phone, which has bought if all goes back again.
Thank you.
And we'll next go to Weston Twigg with Keybanc capital markets. Please go ahead. Your line is open.
Hi, Thanks for taking my question I wanted to ask about R&D and I'm wondering if you still expect your R&D profile to expand through the year and then sort of in a related question I guess.
How is that driving your your product portfolio versus what your competitors are doing and I'm just wondering.
How how your positioning they changed here this pandemic versus where you see your competition doing.
And this period.
No I mean west we continue you know to be committed doing our investment in the R&D. In fact, if you look at our yard and be spends line. It was it absolutely. It was a record level was 7.3% of revenue, but we spent almost 33 million which was.
Up from 30 million.
In Q1 and.
Up about 10% from where it was in Q2 last year as well. So we believe you know we continue to believe that we have an opportunity to.
Gain on our competition through this period of time, we do believe that are competitors that are part of large specialty cam or large industrial companies are gonna be pressed on the R&D side as old with as companies look to reduce cost across the board. So.
And we continue to have a rich opportunity pipeline in some of the things that we've continued to talk about advanced deposition advanced filtration. So we are completely committed to the R&D stuff.
Okay. Thanks, and then just as a quick follow up question Global measurements did you mentioned a the revenue contribution to the back half of the global measurements.
Hi, it'll it'll be very box.
Oh My God.
The the revenue contribution will be very modest and by that less than $10 million.
Okay. Thank you.
Thank you we'll next go to Mike Harrison.
Working capital.
Seaport Global Securities. Please go ahead.
Hi, good morning.
I'm just kind of following up on on the competitive environment.
In the filtration business you have a competitor that had a broader range of markets that they serve.
Some of those markets might be younger more pressure on that what you're seeing in semiconductors. So have you seen them change their focus at all to the increase.
The the amount of business, if they're trying to do who are the offerings of they have for the semiconductor industry. Some went back in competitor.
Okay, I'm not going to go into those.
And.
[noise] taxation of awful.
Competitors, what I would tell you is that we obviously monies are.
All competitors and utilization of death strategy.
Very closely.
I think that we have demonstrated over time that we are.
With the good.
Adjusting and adapting.
You maintained the leadership positions that we have in most of the settlements that so.
Alright, and then in terms of or the Microcontamination control margin I'm pretty strong performance. This quarter I'm. Just wondering if you can comment on whether that strength that sustainable or do you feel like there was something.
Unusual about the mix or other dynamics going on this quarter.
Yeah, I mean, they really benefited from a two things obviously the higher volumes go a long way having to leverage the fixed cost structure the business.
They did benefit from favorable mix and the you know the fastest growing parts of that business.
Also happen to be the highest margin parts of that Uh huh.
Right and if I can sneak one more in curious about the higher compensation costs that you saw in Ah, Yes, young business is that kind of one time or is that something that lingers on for the rest of your thank you out so that.
It is compensation costs will be higher through the balance of the year, but I mean in short what happened is as we came out of Q1, and we accrued our variable compensation and very low levels. Because we had no idea what was going to happen with a much stronger performance in Q2.
It's an annual plan, we raise that compensation cost we had to catch up for Q1 as well so.
It will be at a more normalized levels the balance of the year, So should come down a little but.
Thank you all next move to parents and Michelle with Berenberg. Please go ahead.
Thanks, and good morning like on the Greg can you talk about yeah, Yeah SCM segment.
And I think they didn't actually had several different product type surprise categories, especially kick ass disposition mccants. So I'm, just hoping you could give some color as to.
Holiday, so probably categories are growing and we turned out you're most excited about given de had no can't gates added the second half of next year and maybe if you could maybe talk a little bit about Chad. The mix also yeah that had been in that segment.
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Yes so.
Yes, he and I don't I can probably the most.
Complexity bids in I mean, we still are not of strength in Q2 disposition materialise.
For me.
Yes.
And of course, so some of the benefits of the.
Recent acquisitions.
That that business so all of that.
Wasn't the thus side.
As she into specialty gases and more mature.
Quite at times it can be a threat give me a steady.
But then unfortunately it was it wasn't very sharp decline or.
A great excitement to yours sales since materialise or.
Love exposure to doug's than the applications.
Buckets I guess.
I think trade discharge she name.
I also space.
That's forming applications for instance.
And dose not kids were severely depressed in Q2, and we don't expect cranky just yet.
<unk> for recovery in the back end of the year just to quantify that for you I mean do.
Segment's fourth century down 50% of says because last year.
So what we're most excited about for the back end of the year for that division wouldn't be duty position materialise tied to the new nosy logic and memory.
Got it Deciles very useful and maybe that's just one quick follow up can you remind me here at current exposure to the CMP process, it's primarily on the Silicon carbide side, where do you have other product Council.
Ah on us.
Which I think is the question is due to the on the hauled materials. So its they can call bye.
And on either.
Got it thank you.
Thank you. Your next question comes from David Silver with C.L. King. Please go ahead.
Yeah, Hi, Thank you I have kind of a big Big picture question for Troms I'm, hoping you can comment on.
So you need your record results you you mentioned, we benefited from a meaningful node transitions on the logic side.
And yeah wasn't too long ago, where the industry. Your your major customers seem to be stumbling.
A bit on implementing kinda that that next node transition in logic.
And I would you say you know my impression of industry discussions is greater confidence and not just the current node transition, but the next one and the one after that.
So I was just wondering I mean, it did you you'd be or is there. Another you know kind of facilitating technology that you would say has made the difference in the decision, making and the investment.
Decision of your major customers.
Or you know is just to kind of the phase where the industry roadmaps that I don't know tie or maybe some other people considered more aspiration, all that and realistic I mean are those timetable.
Becoming more realistic and if so you know what would you.
What would you say again is kind of behind bad <unk> growing confidence or willingness to invest a on a more compressed timetable.
So what are what I would say his dad.
The roadmaps are becoming.
Increasing young vicious bookings RG again memory memories, a question of stacking up more than he is not Jake it's about for them, yet transition and migration from the fed structured to get into around structures.
And order values today complex, but I think that as an industry as an ecosystem we have become.
That's it could have rating.
I think that is being a great commitment.
Our engine by order of the major players.
And as a result of that I think there's probably greater confidence that we can do it.
That's great news for us because every where you wanted to look at.
Not cheap oil memory.
All of those architectures, we'd be increasing the you're relying on units I goes better structured and better that's a good properties.
And boil doors, you architectures are increasingly susceptible to contaminants.
So if you summed up the value proposition of Integritys is continuing to growing importance.
And we will continue to have opportunities to increase the content per wafer for many years to though.
So that's really in the reason we are optimistic.
And that's the confidence that we have behind the you know all gord to outpace the market for many years ago.
Okay. Thank you and I apologize for not by should have Reworded. My question to say facilitating technologies. In addition to the ones that a you provide.
I had a question maybe now we haven't discussed is that maybe on the liking edge of the industry.
So I recall between 2016 in 2018, you know your company actually was able to double earnings per share.
And there were certainly a number of demand drivers but to me.
I did I do believe part of the part of the a equation there was rising demand for current generation or even trailing edge a chip.
To satisfy baby Internet of things to related demand for first generation electronics, and autos and industrial settings, where there hasn't really been that level of electronic intensity before.
And I'm wondering if you have any thoughts.
About the what the shape of the post pandemic.
Business environment is going to be so you know well to work at home economy will the need for greater separation or automation and industrial settings.
That's a recipe for longer production run an extended product life cycles for current generation chips, which.
In turn could probably translate into.
Inc. incremental very high margin sales from your existing.
Portfolio of products and services.
Okay.
Yeah, So I mean, the way I would probably.
So.
Yes, I see what you're describing off some of the secular trends that we're excited about.
The way I would maybe frame what you said is that.
Then connector demand would be accelerating.
On the road map so becoming.
More challenging.
The wife requirements wouldn't move towards more stringent security.
Which means that we would have an opportunity to increase the content, but wafer and as you said.
Over time.
Not of the.
For the process nodes.
When transition to more advanced nodes, where we have.
The content of wafers so.
I would expect that to be the case and videos to come.
So that's why I believe all growth prospects are.
Pretty pretty exciting.
Okay. Thank you very much.
Thank you, ladies and gentlemen, we'll take our final question from Toshiya Hari with Goldman Sachs.
Thank you for squeezing in my follow up.
John I had a question that's not not very related to to earnings one of your large OEM customers talked a lot about environmental sustainability.
After keynote at somebody call last the virtual show and the company talked about getting the overall supply chain involved in driving.
I suppose environmental sustainability over the long run is this something but I'm sure you guys are focused on it as well, but did you sense. Your your customer base. Your idea I'm done in foundry customers are increasingly focused on listen to the extent. They are do you feel like efforts here could drive Bob.
It could be a source of differentiation for for a company like in progress going forward. Thank you.
Yes. So she is actually a great question and are they.
The question, we we have done or not Entegris I don't think we have been very effective but couldn't keating broadly what.
We have done a but we have an ongoing efforts to correct that so you should action.
A lot more should be less more because even Q2 hour.
It's all program and it would be for pit is set up one is innovation the other one safety.
The third one would be a inclusion personal growth.
That's one would be sustainability programs, but.
And I think we will actually as part of that program me kit more visitors to the investment community you know customers.
Contributing to the safety of their processes.
So the safety of many of these future applications that are.
Generation of chips, we'd be a neighboring so more to come about.
Thank you.
Thank you. Thank you operator, that's our final question.
Thank you Sir and leasing you only then we'll conclude today's call. We do thank you for your participation you may now disconnect.
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