Q1 2024 Entegris Inc Earnings Call
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Welcome to the Integra first quarter 'twenty 'twenty four earnings conference call. At this time, all participants have been placed on a listen only mode. The floor will be opened for your questions. Following the presentation.
Operator: Welcome to the Integris First Quarter 2024 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode. The floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. To help others hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Bill Seymour, Vice President of Investor Relations.
If he would like to ask a question at that time. Please press star one on your telephone keypad.
If at any point. Your question has been answered you may remove yourself from the queue by pressing star two.
So others can hear your questions clearly, we ask that you pick up your handset or about sound quality. Lastly, if you should require operator assistance. Please press star Zero I would now like to turn the call over to Bill Seymour Vice President of Investor Relations.
Bill Seymour: Good morning, everyone earlier today, we announced the financial results for our first quarter of 'twenty 'twenty four 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 and actual results could differ materially from those.
Bill Seymour: Good morning, everyone. Earlier today, we announced the financial results for our first quarter of 2024. 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, and actual results could differ materially from those projected in the forward-looking statement. Additional information regarding these risks and uncertainties is contained in our most recent annual report and subsequent quarterly reports that we have filed with the SEC.
Bill Seymour: <unk> in the forward looking statements.
Bill Seymour: Additional information regarding these risks and uncertainties is contained in our most recent annual report and subsequent quarterly reports that we have filed with the SEC.
Bill Seymour: Please refer to the information on the disclaimer slide of the presentation. 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 news release as well as on the IR page of our website at integris.com. And finally, for your reference, we have included in the earnings slide presentation consolidated and divisional P&Ls for Q1, and for all four quarters of 2023 that exclude divested. On the call today are Bertrand Lloyd, our CEO, and Linda LaGorga, our CFO. With that, I'll hand the call over to Bertrand.
Bill Seymour: Please refer to the information on the disclaimer slide of the presentation on this call. We will also refer to non-GAAP financial measures as defined by the SEC regulation G. You can find a reconciliation table in today's news release as well as on the IR page of our website at <unk> Dot com.
Bill Seymour: And finally for your reference we have included in the earnings Slide presentation, Consolidator and divisional P&L for Q1 for all four quarters of 2023 that exclude divestitures.
Bill Seymour: On the call today arbitrage, what our CEO and.
Bill Seymour: And Linda look orca, our CFO with that I'll hand, the call over to per truck.
Per Truck: Thank you Bill and good morning, I am pleased with our start to the year for the first quarter.
Bertrand Loy: Thank you, Bill, and good morning. I am pleased with our start to the year. For the first quarter, sales of $771 million were at the high end of our guidance, and gross margin, EBITDA, and non-GAAP EPS were above our guidance. Looking deeper into our financial performance, sales were down in all divisions and across most product areas, as expected and in line with normal seasonality.
Per Truck: Sales of $771 billion were at the high end of our guidance and gross margin EBITDA and non-GAAP EPS were above our guidance.
Per Truck: Looking deeper at our financial performance sales were down in all divisions and across most product areas as expected and in line with normal seasonality.
Bertrand Loy: However, we did see sequential growth in product lines that are critical to our customers' leading-edge node transitions, including selective-edge and advanced deposition materials. From a profitability point of view, even with the market uncertainty, we chose to maintain high levels of investment in R&D. Despite this, and despite the lower sales volumes, we delivered strong results in terms of gross margin and EBITDA. Linda will provide more details on all of that shortly.
Per Truck: However, we did see sequential growth in product lines that are critical to our customers leading edge node conditions.
Per Truck: <unk> selective etch and advanced deposition materials.
Per Truck: From a profitability point of view, even with the market uncertainty, we chose to maintain high levels of investment in R&D.
Per Truck: By discipline, despite the lower sales volumes, we delivered strong results in terms of gross margin and EBITDA Linda will provide more details on all of that shortly.
Bertrand Loy: Let me address a few other highlights of the quarter. On March 4th, we announced the sale of the PIM business for a total of up to $285 million. The sale of PIM completes our planned divestiture of four non-core assets, PIM, QED, electronic chemicals, and a business we sold to Element Solutions. The approximately $1.3 billion in proceeds from those divestitures were used to significantly pay down our debt.
Speaker Change: Let me address a few other highlights of the quarter.
Speaker Change: On March 4th we announced the sale of the pin business for a total of up to $285 million. The sale of pin completes our planned divestiture of four non core assets 10, QED electronic chemicals business, we sold to <unk>.
Speaker Change: <unk> solutions.
Per Truck: Approximately $1 3 billion in proceeds from those divestitures, we're used to significantly pay down our debt.
Per Truck: Next we're making steady progress with our two major investments in new manufacturing capacity, which are vital for us to fully realize our mid and long term growth.
Bertrand Loy: Next, we're making steady progress with our two major investments in new manufacturing capacity, which are vital for us to fully realize our mid- and long-term growth. In Taiwan, our new Kaohsiung facility is on track to ramp up production and is expected to contribute $40 to $50 million of revenue in the second half of the year. And in Colorado, construction at our Rock Rimmons site is progressing rapidly, and we continue to expect initial sales from this facility to be generated in the first half of 2025. Moving on to our outlook for this year. Our view of the semiconductor industry has not changed.
Per Truck: In Taiwan, our new Couch young facility is on track to ramp up production and is expected to contribute $40 million to $50 million of revenue in the second half of the year and in Colorado construction at our rock women site is progressing rapidly and we continue to expect initial sales from this.
Per Truck: <unk> to be generated in the first half of 2025.
Per Truck: Moving onto our outlook for this year.
Per Truck: Our view of the semiconductor industry has not changed we do believe that the market is healthier with normalizing inventories and a more stable demand environment and we continue to expect a gradual market recovery throughout the year.
Bertrand Loy: We do believe that the market is healthier with normalizing inventories and a more stable demand environment, and we continue to expect a gradual market recovery throughout the year. With this as a backdrop, and based on recent forecasts from our customers, for the full year 2024, we continue to expect the market to be up approximately 4% based on our unit and capex mix. In addition, given our strong market position in new logic and memory nodes, we continue to expect to outperform the market by 4 to 5 points this year, excluding the impact of divestiture.
Per Truck: With that as a backdrop and based on recent forecast from our customers for the full year 2024, we continue to expect the market will be up approximately 4% based on our unique and Capex mix.
Per Truck: In addition, given our strong market position in new logic and memory nodes. We continue to expect to outperform the market by four to five points. This year, excluding the impact of divestitures.
Bertrand Loy: Putting it all together, we expect our sales in 2024 to be approximately $3.35 billion. We continue to expect EBDAO to be approximately 29% of revenue and non-GAAP EPS to be greater than $3.25. This annual guidance, of course, includes two months of the PEM business prior to its sale in early March. Linda?
Per Truck: Putting it all together, we expect our sales in 2024 will be approximately three <unk> three $5 billion.
Per Truck: We continue to expect EBITDA to be approximately 29% of revenue and non-GAAP EPS to be greater than $3 and 25%.
Per Truck: Annual guidance of course includes two months of the pin business prior to its sale in early March. So let me now turn the call over to Linda Linda.
Linda: Good morning, and thank you Bertrand.
Linda LaGorga: Good morning, and thank you, Bertrand. Our sales in the first quarter were at the high end of our guidance at $771 million, down 16% year-over-year and down 5% sequentially on an as-reported basis. Q1 sales included approximately two months of revenue from the PIM business, so excluding divestitures from the first quarter and prior periods. Q1 sales were down 5% year over year and down 4% sequentially. Foreign exchange negatively impacted revenue by approximately $8 million year over year and had no impact on revenue sequentially in Q1.
Linda LaGorga: Gross margin on a gap and non-gap basis was 45.6% in the first quarter, above our guidance. The higher margin compared to Q4 primarily reflects improved plant utilization and the PIM divestiture. Operating expenses on a gap basis were $234 million in Q1. Operating expenses on a non-GAAP basis in Q1 were $174 million. Adjusted EBITDA in Q1 was $223 million, or 29% of revenue, above our guidance range, driven by the higher gross margin I just discussed and partially offset by increased R&D investment compared to Q4.
Linda: Our sales in the first quarter or at the high end of our guidance at $771 million.
Linda: Down 16% year over year and down 5% sequentially on an as reported basis.
Linda: Q1 sales included approximately two months of revenue from the pin business.
Linda: So excluding divestitures from the first quarter and prior periods Q.
Linda: Q1 sales were down 5% year over year.
Linda: Down 4% sequentially.
Linda: Foreign exchange negatively impacted revenue by approximately $8 million year over year.
Linda: It had no impact to revenues sequentially in Q1.
Linda: Okay.
Linda: Gross margin on a GAAP and non-GAAP basis was 45, 6% in the first quarter above our guidance.
Linda: The higher margin compared to Q4, primarily reflects improved plant utilization and the Pam divestiture.
Linda: Operating expenses on a GAAP basis were $234 million in Q1.
Linda: Operating expenses on a non-GAAP basis in Q1 were $174 million.
Linda: Adjusted EBITDA in Q1 with $223 million or 29% of revenue.
Linda: <unk> of our guidance range.
Linda: Driven by the higher gross margin I just discussed.
Linda: Partially offset by increased R&D investment compared to Q4.
Linda: Okay.
Linda LaGorga: Net interest expense was $54 million in Q1, below our guidance of $60 million, driven primarily by the positive impact of the PIM sale. The GAAP tax rate in Q1 was 7.1%, and the non-GAAP tax rate was 14.1%.
Linda: Net interest expense was $54 million in Q1.
Linda: So our guidance of $60 million, driven primarily by the positive impact of the <unk> sale.
Linda: The GAAP tax rate in Q1 was seven 1%.
Linda: And the non-GAAP tax rate was 14, 1%.
Linda: GAAP diluted EPS was <unk> 30 per share in the first quarter.
Linda LaGorga: Gap diluted EPS was $0.30 per share in the first quarter. Non-GAAP EPS was $0.68 per share, above our guidance range, driven primarily by the higher gross margin and lower net interest expense. Sales for our Materials Solutions Division in Q1 were $350 million. Sales were down 4% sequentially on an as-reported basis. However, excluding the impact of the divestitures, sales were down just 1% sequentially.
Linda: non-GAAP EPS was <unk> 68 per share above our guidance range, driven primarily by the higher gross margin and lower net interest expense.
Linda: Sales for our materials solution Division in Q1 were $350 million.
Linda: Sales were down 4% sequentially on an as reported basis.
Linda: Excluding the impact of the divestitures sales were down just 1% sequentially.
Linda: During the quarter Ams benefited from the early stage of recovery in the memory market.
Linda LaGorga: During the quarter, MS benefited from the early stage recovery in the memory market. Offset by continued weakness in some mainstream and emerging markets, the Adjusted as reported operating margin for MS was 21.5% for the quarter, up almost 500 basis points sequentially. The primary driver of that increase was improved plant utilization.
Linda: Offset by continued weakness in some mainstream end markets.
Linda: Adjusted as reported operating margin for EMS was 21, 5% for the quarter.
Linda: Up almost 500 basis points sequentially.
Linda: The primary driver of that increase was improved plant utilization.
Linda: Our A&H division sales in Q1 of $163 million were down 4% sequentially.
Linda LaGorga: Our AMH division sales in Q1 of $163 million were down 4% sequentially. The largest driver of the sequential sales decline in AMH was lower sales of fluid handling products. Adjusted operating margin for AMH was 15.1% for the quarter. The sequential increase in margin was primarily driven by the positive impact of improved plant utilization ahead of the expected sequential growth in Q2. For our MC division, sales in the quarter of $268 million were down 7% sequentially, and revenue was lower in all major product lines, consistent with our expectations.
Linda: The largest driver of the sequential sales decline in A&H, where lower sales of fluid handling products.
Linda: Adjusted operating margin for <unk> was 15, 1% for the quarter.
Linda: The sequential increase in margin was primarily driven by the positive impact of improved utilization ahead of the expected sequential growth in Q2.
Linda: For RMC division sales in the quarter of $268 million were down 7% sequentially.
Linda: Revenue was lower in all major product lines consistent with our expectations.
Linda LaGorga: Adjusted operating margin for MC was 32.3% for the quarter. The sequential decline in margin was primarily driven by lower volumes and steady investment in R&D. Moving on to cash flow, first quarter free cash flow was $81 million. Capital expenditures for the quarter were $67 million. We continue to expect to spend approximately $350 million in total capital expenditures in 2024. During the first quarter, we paid down a total of $419 million in debt through a combination of approximately $260 million in PIM sale proceeds and the rest from Cash on Hand.
Linda: Adjusted operating margin for <unk> was 32, 3% for the quarter.
Linda: The sequential decline in margin was primarily driven by lower volumes and steady investment in R&D.
Speaker Change: Moving on to cash flow.
Speaker Change: First quarter free cash flow was $81 million.
Linda: Capex for the quarter was $67 million.
Linda: We continue to expect to spend approximately $350 million in total capex in 2024.
Linda: Okay.
Linda: During the first quarter, we paid down a total of $419 million in that through a combination of approximately $260 million and Tim sale proceeds.
Linda: And the rest from cash on hand.
Linda LaGorga: The term loan balance after the Q1 pay-down was approximately $955 million, which means that to date, we have paid down more than $1.5 billion of the term loan since the CMC acquisition. In addition to the significant debt pay-down, at the end of March, we executed a very successful $75 basis point repricing of our term loan, which resulted in a new interest rate of SOFR plus $175. The blended interest on the debt portfolio is now approximately 4.9%, and since the term line is fully hedged. Currently, 100% of our debt is fixed.
Linda: The term loan balance after the Q1 pay down.
Linda: It was approximately $955 million, which means to date, we have paid down more than $1 5 billion of the term loan since the CMC acquisition.
Linda: In addition to the significant debt Paydown at the end of March we executed a very successful 75 basis point repricing, our term loan which resulted in a new interest rate a sofa plus 175.
Linda: Blended interest on the debt portfolio is now approximately four 9%.
Linda: And since the term loan is fully hedged currently 100% of our debt is fixed.
Linda LaGorga: At the end of Q1, our gross debt was approximately $4.3 billion, and our net debt was approximately $3.9 billion. Gross leverage was 4.6 times, and net leverage was 4.3 times. We continue to expect our growth leverage will be below four times at the end of 2024. Moving on to our Q2 Outlook, We expect sales to range from $790 million to $810 million. This equates to 8.5% sequential growth at the midpoint of the guidance range, excluding divestiture.
Linda: At the end of Q1.
Linda: Our gross debt was approximately $4 $3 billion and our net debt was approximately $3 $9 billion.
Linda: Gross leverage was four six times and net leverage was four three times.
Linda: We continue to expect our gross leverage will be below four times at the end of 2024.
Linda LaGorga: We expect the EBITDA margin to be approximately 28%. We expect GAAP EPS to be between $0.42 and $0.47 per share, and non-GAAP EPS to be between $0.68 and $0.73 per share. Let me provide additional modeling information for Q2.
Linda: Moving on to our Q2 outlook.
Linda: We expect sales to range from $790 million to $810 million.
Linda: This equates to eight 5% sequential growth to the midpoint of the guidance range excluding divestitures.
Linda: We expect the EBITDA margin to be approximately 28%.
Linda: We expect GAAP EPS to be 42 to <unk> 47 per share.
Linda: And non-GAAP EPS to be 68 to.
Linda: 73 cents per share.
Linda LaGorga: We expect gross margin of 45.5 to 46.5 percent, both on a GAAP and non-GAAP basis; GAAP operating expenses of $242 million to $245 million, and non-GAAP operating expenses of $191 million to $194 million. The sequential increase in non-GAAP OPEX from Q1 to Q2 is primarily driven by higher non-cash equity compensation expense. This year, and going forward, we changed the timing of our Equity Grants awards to Q2, whereas historically these grants were made in Q1. We also expect depreciation of approximately $48 million, net interest expense of approximately $51 million, and a non-GAAP tax rate of approximately 15%. I'll now hand it back over to Bertrand for some closing remarks.
Speaker Change: Let me provide additional modeling information for Q2.
Speaker Change: We expect gross margin of 45 five to 46, 5%.
Speaker Change: Both on a GAAP and non-GAAP basis.
Speaker Change: GAAP operating expenses of $242 million to $245 million and.
Speaker Change: non-GAAP operating expenses of $191 million to $194 million.
Speaker Change: The sequential increase in non-GAAP Opex from Q1 to Q2, primarily driven by higher noncash equity compensation expense.
Speaker Change: This year and going forward, we changed the timing of our equity grants awards to Q2.
Speaker Change: Whereas historically these grants were made in Q1.
Speaker Change: We also expect depreciation of approximately $48 million.
Speaker Change: Net interest expense of approximately $51 million.
Speaker Change: On a non-GAAP tax rate of approximately 15%.
Speaker Change: I'll now hand, it back over to Bertrand for some closing remarks.
Bertrand Loy: Thank you, Linda. In closing, we are pleased with our start to the year. During the quarter, we completed our final planned divestiture, and we used the proceeds of that sale and other cash to significantly lower our debt. We continue to expect a gradual market recovery throughout the balance of the year, and we remain very optimistic about the secular long-term growth prospects for the semiconductor industry. In addition, the industry is entering a period of unprecedented technological change and device complexity.
Bertrand: Thank you Linda in closing we are pleased with the start of the year during the quarter. We completed our final planned divestiture and we use the proceeds of that sale and other cash to significantly lower our debt.
Bertrand: We continue to expect a gradual market recovery throughout the balance of the year and we remain very optimistic about the secular long term growth prospects for the semiconductor industry.
Speaker Change: In addition, <unk>.
Speaker Change: Industry is entering a period of unprecedented technology change in device complexity.
Bertrand Loy: Our core competencies in material science and material security, coupled with our unique ability to co-optimize solutions that shorten time to yield, have become increasingly critical for our customers. All of this means the market is moving toward Integris, ultimately translating into rapidly expanding content per wafer and strong outperformance for us for years to come, reinforcing Integris as a value compounder with attractive organic sales growth, leading to a significant opportunity for EBITDA and EPS expansion. With that, Operator, let's open the line for questions.
Speaker Change: Core competencies in material science and materials purity.
Speaker Change: Coupled with our unique ability to co optimized solutions that shorten time to yield have become increasingly.
Speaker Change: Increasingly critical for our customers.
Speaker Change: All of this means the market is moving toward integrity.
Speaker Change: Dmitry translating into a rapidly expanding content per wafer.
Speaker Change: Strong outperformance for us for years to come <unk>.
Speaker Change: Reinforcing integra is value compounded with attractive organic sales growth leading to significant opportunity for EBITDA and EPS expansion.
Speaker Change: With that operator, let's open the line for questions.
Operator: The floor is now open for questions. At this time, if you have a question or comment, please press star 1 on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing star 2. Again, we ask that you pick up your handset when posing your questions to provide optimal sound quality. Thank you.
Speaker Change: The floor is now open for questions. At this time, if you have a question or comment. Please press star one on your telephone keypad. If at any point. Your question is answered you may remove yourself from the queue by pressing star two.
Speaker Change: Again, we ask that you pick up your handset when posing your questions to provide optimal sound quality.
Speaker Change: Yeah.
Speaker Change: Thank you. Our first question comes from <unk> Hari with Goldman Sachs.
Hari: Hi, good morning. Thank you so much for taking the question my.
Toshiya Hari: Hi, good morning. Thank you so much for taking the time to answer the question. Bertrand, my first question is on the industry outlook. You're maintaining the 4% growth outlook. I'm sure there are quite a few kind of pluses and minuses, puts and takes there. If you can walk us through, you know, what you're seeing from a wafer start perspective across DRAM, NAND, leading-edge logic, and trailing edge to the extent your views have changed, that would be super helpful, and then a comment or two on the CapEx side as well. And then I've got a quick follow-up for Linda. Thank you.
Hari: My first question is on the industry outlook youre, maintaining the up 4% outlook.
Hari: Im sure there is quite a quite a few kind of pluses and minuses puts and takes there.
Hari: Walk us through what Youre seeing from a from a wafer.
Hari: Wafer start perspective.
Hari: Across DRAM NAND.
Hari: Leading edge logic and trailing edge.
Hari: To the extent your views have changed that would be super helpful and then.
Hari: A comment or two on the Capex side as well and then I've got a quick follow up for Linda. Thank you.
Hari: Okay.
Bertrand Loy: Thank you, Toshiya. As I said in my prepared comments, our views on the industry have not really changed since we spoke last. Essentially, you know, we expect the industry to be up 4% using our industry blend of 75% units and 25% capex. And what we're seeing is, you know, visible signs of life in advanced logic in DRM with a steady increase in wafer fab production. 3DNAN is going through a slower recovery, but it's again stable, and we expect some gradual recovery in the second half of the year.
Speaker Change: Thank you Toshi.
Speaker Change: As I said in my prepared comments all of us for the industry, if not really changed since we spoke last.
Speaker Change: Essentially.
Speaker Change: We expect the industry to be up 4% using our industry blend of 75% units, 25% Capex.
Speaker Change: And what we're seeing is.
Speaker Change: Visible signs of life in advanced logic.
Speaker Change: In DRAM with steady increase in wafer fab.
Speaker Change: Production.
Speaker Change: Three D NAND.
Speaker Change: Is going through a slower recovery, but again, it's stable and we expect some gradual recovery in second half of the year and of course, we've been keeping a close eye on mainstream we saw sharp compression in <unk>.
Bertrand Loy: And of course, we've been keeping a close eye on mainstream. We saw sharp compression in fab utilization in Q1. We expect a little bit more of that in Q2, but we expect mainstream to stabilize in the back half of the year.
Speaker Change: Our utilization in Q1, we expect that it would be more of that in Q2, but we expect mainstream to stabilize in the back half of the year.
Bertrand Loy: Great. Thank you for that.
Speaker Change: Great. Thank you for that and then for Linda.
Linda: I guess, a two parter one on gross margin and the other on Opex. So gross margin with the divestiture, you're doing really well and you're guiding Q2 nicely as well.
Linda LaGorga: And then for Linda, I guess a two-parter, one on gross margin and the other on OPEX. So gross margin with the divestiture, you know, you're doing really well, and you're guiding Q2 nicely as well. As you think about the second half, I was hoping you could walk us through some of the puts and takes. You know, is there further upside to utilization inside of Integris, and could that be a tailwind? And how should we think about things like product mix and, you know, the ramp of Taiwan and Colorado and then OPEX very quickly, so given the shift in the timing of the grants, is it fair to assume Q3 potentially normalizes lower from an OPEX perspective? Thank you.
Linda: About the second half I was hoping you could walk us through some of the puts and takes.
Linda: Is there further upside to utilization inside of Integra and could that be a tailwind and how should we think how should we be thinking about things like product mix and.
Linda: The ramp of Taiwan in Colorado, and then Opex very quickly given the shift in the timing of the grants is it fair to assume Q3 potentially normalizes lower for from an Opex perspective. Thank you.
Speaker Change: Sure. So let me first hit your question on gross margin second half some of the puts and takes as Bertrand mentioned, we're expecting a gradual progression of the industry.
Linda LaGorga: Sure, so let me first hit your question on gross margin, second half, some of the puts and takes. You know, as Bertrand mentioned, we're expecting a gradual progression in the industry. You know, with that, some of the tailwinds can be some volume leverage, and that can be mixed depending on how those tailwinds evolve. That being said, Toshiya, as you mentioned, we still have KSP, and KSP still does provide some headwinds, although we are expecting those headwinds to start to alleviate to some degree with some of the revenue coming in. But there is still that mix of headwinds and tailwinds.
Speaker Change: With that some of the tailwind can be some volume leverage and it can be mixed depending how and how those tailwind to evolve that.
Speaker Change: That being said she as you mentioned, we still have KSP and KSP still does provide some headwinds although we are expecting those headwinds to start to alleviate to some degree with some of the revenue coming on but there is that mix still of headwinds and tailwind.
Linda LaGorga: So right now, we haven't provided gross margin guidance specifically for the full year, but I would think of those gives and takes as we go through the rest of the year and the second half and see how things evolve. On the OPEX side for the second half, you know, most importantly, I would say we are committed to continuing to invest in our business. And we have said we're going to have R&D of approximately 9%, and you will see that commitment throughout the year.
Speaker Change: So right now we haven't provided gross margin guidance, specifically for the full year, but I would think of those gives and takes as we as we go through the rest of the year in the second half and see how things evolve.
Speaker Change: On the Opex side for the second half.
Speaker Change: Most importantly, I would say we are committed to continuing to invest in our business and we have said, we're going to have R&D of approximately 9% and you will see that commitments throughout the year, we have many exciting things to invest in.
Linda LaGorga: We have many exciting things to invest in. So right now, as far as OPEX is concerned, again, not giving specific guidance, there will be some SG&A leverage, but you should expect to see us continuing to invest going forward, which will offset some of that SG&A leverage.
Speaker Change: So right now as far as Opex again, not giving specific guidance there will be some SG&A leverage, but you should expect us see us continuing to invest going forward, which will offset some of that SG&A leverage.
John Ezekiel E. Roberts: Thank you so much and congratulations. Thank you. Thank you. Our next question comes from John Roberts with Mizuho.
Speaker Change: Thank you so much and congrats.
Speaker Change: Thank you.
John Ezekiel E. Roberts: Thank you. Our next question comes from John Roberts with Mizuho Securities. Thank you, and nice quarter. Bertrand, you normally have a price.
Speaker Change: Thank you. Our next question comes from John Roberts with Mizuho Securities.
Speaker Change: Yeah.
John Ezekiel E. Roberts: Okay. Thank you and nice quarter Bertrand you normally have some price down and your products over time as the mix continues to shift towards leading edge here do you think the pricing dynamics are going to change.
John Ezekiel E. Roberts: Yeah.
Bertrand Loy: Look, at a high level, I would say that I've been pleased with the pricing trend over the last several years. I mean, you have to say that in a softer industry environment, this is not really particularly conducive to price increases. But I think that, again, we've had some... Some more favorable trends in the last three years as compared to the preceding three years.
Speaker Change: At high level, I would say that I've been pleased with the <unk>.
Speaker Change: <unk> trends over the last several years I mean, you have to say that in a softer industry environment.
Speaker Change: Not really particularly conducive to price increases.
Speaker Change: But I think that again, we've had some.
Speaker Change: Some more favorable trends in the last three years as compared to the preceding.
Speaker Change: For years.
Speaker Change: And then maybe could you discuss a little bit more currency given the weakness we've seen in several of the Asian currencies recently.
Linda LaGorga: Sure, I'll go ahead and pick up the currency question. First, we don't try to forecast FX, but we clearly monitor it. So, let me give you the context of how we think about our business.
Speaker Change: Sure I'll go ahead and pick up the currency question.
Speaker Change: So I would say first we don't try to forecast FX, but with clearly monitor it. So let me give you the context of how to think about our business. Historically FX has not had a huge impact on our business and here's why.
Linda LaGorga: Historically, FX has not had a huge impact on our business, and here's why. Our USD sales are 75% or greater, typically in a quarter. We've also had a natural hedge between our sales and our costs. That being said, we have seen this appreciation in the dollar recently, and when that happens quickly, that does have some impact on our margin due to the timing between when products are built and when they're sold.
Speaker Change: Our USD sales are 75% or greater typically in a quarter was also had a natural hedge between our sales and our costs that being said we have seen this appreciation and the dollar recently and when that happens quickly that does have some impact on our margin due to the timing between between.
Speaker Change: <unk> products are built in when they are sold.
Linda LaGorga: So as we looked at our guidance for April, we looked at the currency rates, you know, as of the end of last week, and we factored that into our thinking, but we're going to have to continue to monitor currency going forward.
Speaker Change: So as we looked at our guidance for April we looked at the currency rates as of the end of last week, and we factored that into our thinking but we're going to have to continue to monitor currency going forward.
Speaker Change: Thank you.
Speaker Change: Yeah.
Bhavesh Mahesh Lodaya: Thank you. The next question comes from Bhavesh Lodaya with BMO Capital Markets.
Speaker Change: Thank you. Our next question comes from <unk>, <unk> with BMO capital markets.
Bhavesh Mahesh Lodaya: Hi, good morning. Thanks for taking my question. Bertrand, with respect to your material sciences segment, if I look at slide 17, the numbers excluding divestitures, the segment had flat sales sequentially, but operating profits jumped almost 30%. Can you share what drove that margin uplift? And then it seems like memory markets are just starting to recover here. So what kind of margin uplift should we expect heading into 2024 for this segment?
Speaker Change: Hi, good morning, Thanks for taking my question.
Speaker Change: One is with respect to your material Sciences segment, if I look at slide 17, the numbers excluding divestitures.
Speaker Change: The segment has flat sales sequentially, but operating profit jumped almost 30% can you share what drove that margin uplift and then it seems like memory markets that just starting to recover here. So what kind of margin uplift should be expect heading into place any flaw for the segment.
Bertrand Loy: Right, so Bhavesh, maybe I can take the implied question of the top line and what's driving the top line in MS this past quarter, and then I will defer to Linda to take more precisely your question on margin. But we were obviously very pleased with the performance of our material solutions business, again, being essentially flat, sequentially at a time when there was some seasonal softness in the industry.
Speaker Change: Alright, so perhaps maybe I can take.
Speaker Change: The implied question on topline and what's driving the top line.
NMS: NMS and this past quarter, and then I will defer to Linda to take more precisely your question on margin, but we obviously we were very pleased with the performance of our material solutions business.
Linda: Again being essentially flat.
Linda: Sequentially.
Linda: Time when.
Speaker Change: There was some some seasonal seasonal softness in the industry. So what's behind that is really I mean remember that this is the one part of the business that has the most exposure to memory. So obviously memory was a significant headwind for that business last year, and we've talked about that.
Bertrand Loy: So, what's behind that is really important to remember that this is the one part of the business that has the most exposure to memory. Obviously, memory was a significant headwind for that business last year, and we've talked about that, especially during the first half of last year. But that headwind has turned into a tailwind, and we've seen some gradual sequential improvements in that business in Q3 and Q4, and obviously a very solid Q1, which bodes well for the rest of the year. Perhaps turning to you, Linda, in terms of the implications on marketing. Yep.
Speaker Change: Especially during the first half of last year.
Speaker Change: The headwind is turned into a tailwind and we have seen some gradual sequential improvement in that business.
Speaker Change: In Q3, and Q4, and obviously, a very solid Q1, which bodes well for.
Speaker Change: For the rest of the year.
Speaker Change: Turning to Julien in terms of the implication on margin.
Speaker Change: Yeah.
Linda LaGorga: I can't profess on margin, to your point of the increase in margin this quarter for MS. I mentioned in the call plant utilization, but let me give you a bit more specifics. For example, we had lines that were idle that are now up and running. I would also say there was a bit of productivity that contributed to that margin ramp and also some SG&A leverage cost efficiency as we combined the two divisions together.
Julien: With us on margin to your point of the increase in margin this quarter for MFS.
Julien: I mentioned in the call the plant utilization, but let me give you a bit more specifics for example, we have lines that were idle that are now up and running.
Speaker Change: I would also say there was a bit of productivity that contributed to that margin ramp and also some SG&A leverage cost efficiency as we combine the two visit divisions together.
Speaker Change: Yeah.
Bhavesh Mahesh Lodaya: Got it. And then, there seems to be growing noise around U.S. sanctions on Chinese chipmakers. Also, the Chinese government is talking about freezing out, say, Intel and AMD chips from their operations. Has this changed your view on the sales impact for your company? And are there any offsets where you lose some sales in one area, but you probably make up for that sales as the domestic Chinese players grow in size?
Speaker Change: Got it and then there seems to be growing noise around U S sanctions on Chinese chipmakers.
Speaker Change: Also the Chinese government is talking about freezing.
Speaker Change: Intel AMD chip summed it operations.
Speaker Change: Has this changed your view on the sales impact.
Speaker Change: For the company and are there any offsets that you lose some sales in one area, but you probably make up for the sales in the domestic Chinese brands grow in size.
Bhavesh Mahesh Lodaya: I'm sorry, Bhavesh, I didn't hear your question really well. Could you, would you mind repeating it?
Speaker Change: Oh I'm sorry.
Speaker Change: Sorry.
Speaker Change: Didn't hear your question really well could you would you mind repeating it.
Bhavesh Mahesh Lodaya: Absolutely, yeah, this is just around the... the sanctions that the U.S. government is probably increasing, I would say, in intensity. And even the Chinese government is talking about phasing out Intel and AMD chips from their operations. How does that impact your business, and does your exposure to Chinese domestic players actually help offset some of this?
Speaker Change: Absolutely yes. This is just around.
Speaker Change: The sanctions that the U S government.
Speaker Change: Yes.
Speaker Change: Dolby is increasing I would say in <unk>.
Speaker Change: Intensity and even the Chinese and they're talking about phasing out Intel.
Speaker Change: Intel and AMD chips from their operations.
Speaker Change: How does that impact your business.
Speaker Change: Doug you had exposure in the Chinese domestic peers actually help offset some of this.
Bertrand Loy: Oh, I see. Yes, well, look, I think that we're not going to speculate on potential new restrictions or escalation between... the U.S. and China. The current export restrictions are well understood. We have invested in a solid and capable team to comply with those restrictions. We have quantified that impact, which is about a $20 million loss in revenue on a quarterly basis. We saw that impact reflected in our Q4 2022 numbers and some of it in Q1 2023, but the business has actually been relatively steady, and we continue to do really well with the customers that we can still serve.
Speaker Change: So I'd say.
Doug: Yes, well look I think that we're not going to speculate on.
Speaker Change: Sure New.
Speaker Change: Restrictions for escalation between you.
Speaker Change: U S and China thing that.
Speaker Change:
Speaker Change: The current export restriction, so well understood.
Speaker Change: <unk> invested in a solid and capable team to comply with those restrictions we have quantified that.
Speaker Change: That impact, which is about a $20 million.
Speaker Change: Loss in revenue on a quarterly basis, we saw that impact reflected in our Q4 2022 numbers and some of it in Q1 2023.
Speaker Change: Business has been actually relatively steady.
Speaker Change: And we continue to do really well with the customers that we can still serve.
Bertrand Loy: We saw some steady FAB construction activity in China that benefited our AMH business, and then many of those new mainstream FABs started production, and we saw the benefits of that in our MS and MC divisions as well. So if you look at our China business, which is again mostly mainstream and international FABs, It's been going pretty well. And again, I won't speculate on what comes next, and we will update you if there's something to talk about.
Speaker Change: Awesome.
Speaker Change: <unk> fab construction activity in China that benefited our image business and then many of those new mainstream Fabs have started production and we saw the benefits of that in our MMS and NMC divisions as well. So if you look at our China business, which is again, mostly mainstream and.
Speaker Change: International Fabs I mean, it's.
Speaker Change: It's been it's been it's been doing pretty well and again I won't speculate on what comes next and we will update you if there's something to talk about.
Speaker Change: Thank you.
Operator: Thank you. The next question comes from Aleksey with KeyBank Capital Market.
Speaker Change: Thank you. Our next question comes from Alexia <unk> with Keybanc capital markets.
Aleksey V. Yefremov: Good morning, everyone. Bertrand, could you describe the new node range at your memory customers and the outlook for 2024 and 2025?
Alexia: Good morning, everyone.
Alexia: Could you describe.
Alexia: The new node ramp at your memory customers the outlook for 2024 and 2025.
Bertrand Loy: Yeah, Aleksey, so we are obviously paying close attention to the transitions in 3DNAN and in advanced logic and foundry. As you know, we have incremental wafer content opportunities on those new architectures, something that we're watching closely, and we are pleased, first of all, that all of those transitions still appear to be on time. When it comes to 3D NAN, in particular, we have a number of different material solutions that are becoming increasingly critical to those high layer count architectures.
Alexia: Yes, Alex it so.
Alexia: We are obviously paying close attention to node transitions in.
Speaker Change: <unk>, NAND and advanced logic and foundry.
Speaker Change: No we have.
Speaker Change: Incremental wafer content opportunities those new architectures. So this is something that we're watching closely and we are pleased first of all that all of those traditions still appear to be to be on time.
Speaker Change: When it comes to three D NAND in particular.
Speaker Change: We have a number of different materials solutions that are becoming increasingly critical to doors higher layer count architectures. I mean, we've been talking about selective edge for a number of years.
Bertrand Loy: I mean, we've been talking about selective edge for a number of years, but what is really exciting going forward is the adoption of molybdenum in high volume production. And Entegris has developed a very unique suite of capabilities, leveraging competencies across a number of different business units, to develop an industry-leading pro-EVAP canister to sublimate those solid precursors into gases. Those gases are highly corrosive, so we have developed some proprietary protective coatings for the lines and, of course, gas filtration and gas delivery cabinets.
Speaker Change: But what is really exciting going forward is the adoption of molybdenum in high volume production.
Speaker Change: And in.
Speaker Change: Integrity is develop the very unique suite of capabilities.
Speaker Change: Leveraging our competencies across a number of different business units.
Speaker Change: To develop.
Speaker Change: The industry leading.
Speaker Change: <unk> canister to simply made those solid precursors into into gasses doors gases is highly corrosive. So we've developed some appropriate III protective coatings.
Speaker Change: For the two lines.
Speaker Change: Of course gas filtration and guests delivery covenants so.
Bertrand Loy: You know, we are very focused on this transition, and those transitions don't happen very often, and we think that we have a unique opportunity to ease the industry migration to Molybdenum. So this is something, obviously, that we're going to continue to watch very carefully for the balance of the year.
Speaker Change: We are very focused on this transition.
Speaker Change: Transitions don't don't happen very often.
Speaker Change: And we think that we have a unique opportunity to.
Speaker Change: The industry migration to two molybdenum. So this is something obviously that we can continue to watch very carefully for the balance of the year.
Aleksey V. Yefremov: Thanks Bertrand. Just to follow up on this, is this, is it logical that 25 could be maybe a more productive, faster growth from the content and transition perspective and memory for you than 24?
Speaker Change: Thanks Brooks.
Speaker Change: Follow up on this I guess.
Speaker Change: Is it logical to 25 could be maybe a more productive faster growth here from.
Speaker Change: Content and transition perspective memory for you in 2004.
Bertrand Loy: I think implied. I mean, we're not going to give you precise guidance on 2025, but you're right. I think that a lot of those new transitions, be it in memory or in logic, will be taking place late in 2024. And so, of course, you know, the bulk of... We will see a little bit of that, and we expect to see a little bit of that; it's taken into account in our annual guidance for 2024, but the bulk of the positive impact will be felt in 2025.
Speaker Change: I think implied I mean, we're not going to give you a precise guidance on 2025, but youre right I think that a lot of those new traditions be it in memory or logic.
Speaker Change: I'll be taking place late in 2024.
Speaker Change: And so of course the bulk of.
Speaker Change: The opportunity from it from a top line standpoint will be.
Speaker Change: I mean, we've seen we will see a little bit of that and we expect to see a repeat of that it's taken into account.
Speaker Change: Our annual guidance for 2024, but the bulk of the.
Speaker Change: The positive impact would be felt in 2025.
Speaker Change: Thanks, a lot.
Timothy Michael Arcuri: Thank you. The next question comes from Tim Arcuri with UBS.
Speaker Change: Thank you. Our next question comes from Tim Arcuri with UBS.
Timothy Michael Arcuri: Hi Bertrand, thanks a lot. I had a different question, Bertrand, on China. And the question really is, it seems like if you read the tea leaves, that the update this fall is going to be a lot more in the supply chain and more on the material side. And there was already some news that came out about some bans on the material side. So, I mean, I know you're in close contact with the Commerce Department, so I'm kind of wondering whether you think this presents a risk for you this fall when this update comes out.
Timothy Michael Arcuri: Alright, Thanks, a lot I had a different question, but one on China and the question really is it seems like if you read the tea leaves that the update this fall.
Timothy Michael Arcuri: He is going to be a lot more in the supply chain and more on the material side.
Timothy Michael Arcuri: And there was already some news that came out of that some bands on the materials side. So I mean.
Speaker Change: I know you are in close contact with the with the with the Commerce Department. So I'm kind of wondering whether you think this presents a risk for you. This fall when this update comes out.
Bertrand Loy: Look, Tim, I don't read tea leaves really well. I'm a coffee drinker myself. But as I said, I'm not going to speculate. We are obviously working closely with the government. But again, as I said, I'm not going to speculate on the potentially upcoming Nooroo. Do you have any other questions, Tim?
Speaker Change: Look Tim.
Timothy Michael Arcuri: I don't want to read tea leaves really well.
Timothy Michael Arcuri: Coffee drinker myself, but as I said.
Timothy Michael Arcuri: I'm not going to speculate we are obviously working closely with with the government.
Timothy Michael Arcuri: But again as I said I'm, not I'm not going to speculate on.
Timothy Michael Arcuri: On potentially upcoming.
Speaker Change: No roads.
Speaker Change: Do you have any other question Tim.
Timothy Michael Arcuri: I do, I do, Bertrand, yes. So I'm just wondering, to get to the up 4% market number that you're suggesting, I mean, you know, you're guiding your business up nine, and you're saying that the TAM's up four. What is the TAM up four based on? Because Gartner has MSI up 11 this year. And if you listen to the equipment companies, you know, WFE's up high single digits. I mean, I'm up more like 10%.
Timothy Michael Arcuri: I do I do between yes, so I'm just wondering.
Speaker Change: To get to get to a 4% market number that you're suggesting that you're getting your business up nine and youre, saying that the teams up for what is what is the team up for based on it because Gartner has MSI have the weather this year and if you listen to the equipment companies.
Timothy Michael Arcuri: But if you listen to them, it's up high singles. So if WFE's up high singles, and if Gartner MSI is up 11, how is TAM up only four? I'm just kind of curious how you're getting to that number.
Speaker Change: <unk> is up high single digits, I mean, I'm not more like 10%, but if you listen to them, it's up high singles.
Speaker Change: WPS up high singles and if garner Msas up 11, how sustainable before I'm, just kind of curious how youre getting to that number. Thanks.
Bertrand Loy: Yeah, I mean, as you know, a lot of those research firms actually will go through multiple revisions of their guidance and forecasts for the year. I mean, you could say that our assumptions may be conservative, but I think that most... you know, market research firms have actually slowly brought their numbers down when it comes to MSI in particular. So I think that having a wafer start assumption of about 5 is probably a good place to be at this point.
Speaker Change: Kevin as you know a lot of those.
Kevin: Research firms actually will go through multiple revisions of their guidance and forecast for the year I mean, you could say that.
Speaker Change: Our assumptions may be conservative, but I think that most.
Speaker Change:
Speaker Change: Market research firms have actually slowly brought their numbers down when it comes to two MSI in particular, so I think that having a wafer start assumption at about five.
Speaker Change: <unk> is probably a good place to be at this point and if it is better then we will of course benefit from that.
Bertrand Loy: And if it is better, then we will, of course, benefit from that. When it comes to CAPEX, remember that our CAPEX number is really a full industry number. It's not just WFE. And we believe that the industry's capex is gonna be essentially flat, maybe modestly up, but essentially flat, right? So I think that's really the basis for that 4% number. And we will update you.
Speaker Change: When it comes to Capex remember that our Capex number is really a food industry Capex, it's not just Wi Fi.
Speaker Change: And we believe that.
Speaker Change: The industry Capex is going to be essentially flat, maybe modestly up but but essentially flat right. So so I think thats really the basis for that 4%.
Speaker Change: Number.
Speaker Change: And we will update you, okay, yes, I get it.
Speaker Change: Got it.
Timothy Michael Arcuri: Yeah, no, I guess, I guess I was just going to say just to put a fine point on it, whatever the TAM is, you're saying that you're going to outgrow the TAM this year. That's right.
Speaker Change: Yes, no I guess I guess I was just going to say just to just to put like a final point on it whatever the Tam is youre, saying that youre going to outgrow the team this year.
Speaker Change: That's right that's right.
Bertrand Loy: And that's what we've done. I mean, the reason why we have established that growth algorithm is that we recognize that the industry is notoriously hard to predict. And our goal and our commitment is to outpace the industry by three to six points, and this year, we said that that range was going to be four to five.
Speaker Change: And that's what we've done I mean thats okay.
Speaker Change: And why we.
Speaker Change: We have established that growth algorithm as we recognize that the industry is notoriously hard to predict.
Speaker Change: And our goal and our commitment is to outpace the industry by.
Speaker Change: Three to six.
Speaker Change: And this year, we said at that range is going to be four to five.
Timothy Michael Arcuri: Okay, perfect. Thank you.
Speaker Change: Okay perfect. Thank you.
Speaker Change: Sure.
Yu Shi: Thank you. Our next question comes from Charles Shi with Needham.
Speaker Change: Thank you. Our next question comes from Charles <unk> with Needham.
Yu Shi: Good morning, Bertrand, Linda. I just want to ask a little bit more about the industry-level CAPEX expectation for this year. Maybe let me start with the observation of your numbers first, because I did notice while MS does seem to be off the bottom, if I look at your performer numbers for the past five quarters, but MC, AMH, both divisions have a little bit more exposure to the CAPEX side and that they seem to take a little bit down in Q1.
Charles: Hey, Good morning, Hey, Botswana, Linda I, just wanted to ask a little bit more on the on the.
Charles: Industry level Capex.
Charles: By patients for this year.
Charles: Maybe let me start with that observation on your numbers first because I did notice while MFS does seem to be off the bottom if I looked at your pro forma numbers for the past five quarters about that.
Charles: The anh both divisions are have a little bit more exposure to the capex side.
Charles: And if you take a look back out.
Charles: In Q1, and I also noticed that you did.
Charles: Our fluid handling and want the weakness areas, which I believe is probably more on the infrastructure side, So I get it.
Yu Shi: And I also noticed that you pointed out fluid handling as one of the weakness areas, which I believe is probably more on the infrastructure side. So I get it, you are expecting the full industry CAPEX to be flat to modestly up, but between infrastructure and equipment, do you have a little bit different view there between those two? Maybe infrastructure does sound like it may be temporarily under pressure in Q1, but I just want to get a little bit of a sense on a four-year basis. What do you see there? Thanks.
Charles: Are you expecting.
Charles: Industrial capex to be flat to modestly up between infrastructure.
Charles: And the equipment that you have a little bit different view there between those two maybe you can construct that sounds like it may be a temporarily under pressure in Q1, but I just wanted to get a little bit sense on a full year basis, what do you see there.
Bertrand Loy: Yes, if I look at AMH specifically, well, you have those two components. I mean, we sell fluid handling components that go into the new fab construction projects, and then we sell FUPs that are really more tied to tool ends. So, fluid handling has been relatively steady, and that's really a function of all of the major new fab construction projects that have been announced and that we've witnessed around the world.
Speaker Change: Yes, if I look at EMEA, specifically, where you are actually those two components I mean, we sell freely.
Speaker Change: Fluid handling components that go into the new fab construction projects and then we sell troops that are really more.
Speaker Change: Tied to.
Speaker Change: <unk>.
Speaker Change: So fluid handling has been actually relatively steady and that's really a function of all of the major new fab construction projects that have been announced and have been.
Speaker Change: That we've witnessed.
Bertrand Loy: The FUP business, on the other hand, actually has contracted. I mean, we still had relatively robust demand for our FUP early in 2023. I mean, we came into 2023 with a fair amount of backlog for our FUP products, but that backlog has dissipated, so the FUP business has been relatively quiet for the balance of the year. So again, a sharper decline in the product lines that are WFA related and less of a decline for the products that are NUFAB construction related.
Speaker Change: Around the world.
Speaker Change:
Speaker Change: Food business on the other hand actually contracted I mean, we we had a very still relatively robust.
Speaker Change: Demand for our FOUP early in 2023, I mean, we came into 2023 was a fair amount of backlog for products that backdrop has dissipated so.
Yu Shi: Business has been relatively soon.
Speaker Change: Hello.
Speaker Change: <unk> recovered and we expect that to your debt that we have reached bottom in Q1 of this year and we expect actually to see gradual recovery in that particular product line.
Speaker Change: For the balance of the year. So again, a sharper decline in the product lines that are <unk> related and less of a decline for the products that are new fab construction related.
Yu Shi: And what's the outlook for the full year between infrastructure, capex, and equipment? What do you see? So right now, we expect.
Speaker Change: And what's the outlook for the full year between infrastructure Capex and the equipment what do you see.
Speaker Change: So right now we expect.
Bertrand Loy: So right now, we expect relatively steady infrastructure, you know, related demand, and we expect to see some uptick in WFE-related demand in backup.
Speaker Change: Relatively steady.
Bhavesh Mahesh Lodaya: Infrastructure.
Bertrand Loy: Related.
Yu Shi: Demand.
Speaker Change: And we expect to see some some uptick in Wi Fi related.
Speaker Change: And in the back half of the year.
Yu Shi: Thank you. And our next question comes from Christopher Parkinson with Wolf Research.
Speaker Change: Thank you and our next question comes from Christopher Parkinson with Wolfe Research.
Christopher Parkinson: Great, thanks. This is Harris. Fine on for Chris.
Speaker Change: Great. Thanks. This is Harris fein on for Chris.
Christopher Parkinson: So, I mean, we've seen a lot of grants for new fabs in the U.S. over the last few weeks. I guess at what point during the construction process for those fabs would customers start to come to you for, you know, foops, filtration systems, things of that nature? And then, related to that, how do you feel about Colorado Springs receiving funding? I guess what could that look like? Mm-hmm.
Speaker Change: So I mean, we've seen a lot of grants for new Fabs in the U S over the last few weeks.
Christopher Parkinson: I guess at what point during the construction process for those Fabs would customers start to come to you for.
Christopher Parkinson: Fuchs filtration systems things of that nature.
Harris Fein: And then I guess related to that how are you feeling about Colorado Springs, receiving funding I guess, what could that look like.
Christopher Parkinson: Mhm.
Speaker Change: Yes so.
Bertrand Loy: Let's talk first about the shape of the opportunity when new fabs are being built. So typically,
Speaker Change: Let's talk first.
Bertrand Loy: <unk>.
Harris Fein: The.
Bertrand Loy: The shape of the opportunity when new Fabs are being built so typically.
Bertrand Loy: We start by selling fluid handling solutions. I mean, those solutions are used in the subfab chemical loops. So we see those opportunities really early on when new fabs are being built. It's then followed by the large gas purification systems that those advanced fabs will need. I mean, all of those advanced fabs are using much greater volumes of processed gases, requiring more advanced purity. So those systems are really key to achieve that.
Harris Fein: We start by by sending fluid handling solutions I mean, those solutions are used in the sub fab chemical loops. So we see those opportunities really already on when new fabs are being built.
Harris Fein: It's then followed by the large gas purification systems dose advanced Fabs will need I mean, all of those events Fabs all using.
Harris Fein: Much greater volumes of processed gases is requiring.
Bertrand Loy: More advanced.
Bertrand Loy: <unk>. So those two systems are really key to achieve that.
Bertrand Loy: And then it would be the food fleet, and the fleet is usually delivered at the time the tools are getting into the fabs, right? And then, you know, and then we're going to start actually seeing demand for filters and chemistries when the fabs are gearing up for their ramp. So, you know, that's the way you should think about it.
Bertrand Loy: And then it would be the FOUP fleet and the fleet is usually.
Harris Fein: Delivered at the time, the tools or getting into the Fabs right.
Bertrand Loy: And then.
Harris Fein: And then we can start to actually you're seeing demand for filters and.
Speaker Change: And Chemistries win.
Bertrand Loy: The Fabs are.
Bertrand Loy: Give me gearing up for a full day ramp.
Harris Fein: So that's so feel that that's the way you should think about it essentially three different waves of opportunities for us.
Bertrand Loy: Essentially, three different waves of opportunities for us. When it comes to... Our investment in Corrado, we filed our application last year. We've been in constant, constructive dialogue with the chip. Program Office. We believe that this investment in Colorado is clearly in line with the objectives of the administration, an objective that is not just to ensure advanced semiconductor manufacturing but also to make sure that the critical components of the ecosystem will be manufactured here in the U.S. And again, what our plans are for, Rockrimmon, which is the name of the site in Colorado, fits perfectly with that objective.
Bertrand Loy: When it comes to.
Bertrand Loy: Our investment in Colorado.
Bertrand Loy: <unk>.
Harris Fein: Filed.
Bertrand Loy: Our application last year.
Bertrand Loy: Ben.
Bertrand Loy: In constant dialogue constructive dialogue with the chips program office.
Bertrand Loy: We believe that this investment in Colorado is squarely in line with the objectives of the administration and objective that is not just to.
Bertrand Loy: On four events to me conductor manufacturing, but also to make sure that the critical components of the ecosystem will be manufactured here in the U S and.
Bertrand Loy: Again, what our.
Harris Fein: Plans are for <unk>.
Bertrand Loy: <unk>, which is the name of the site in Colorado fits squarely that that objective so.
Speaker Change: That's probably as much as I can I can tell you I would just say that obviously.
Bertrand Loy: That's probably as much as I can tell you. I would just say that obviously, you know, the more incentives we can have and the sooner we can have access to those incentives, the easier it will be for us to accelerate our Phase 1 and potentially Phase 2 investment in Corrado.
Bertrand Loy: The more incentives, we can have and the sooner we can have access to those incentives.
Bertrand Loy: The easier it will be for us too.
Bertrand Loy: To accelerate all phase, one and potentially phase two.
Bertrand Loy: Investment in Colorado.
Christopher Parkinson: Got it. That's helpful. And for my follow-up, I know DRAM is not a huge part of your business today. You know, there's some talk around memory customers as they ramp up HBM maybe being a little bit more disciplined than they've been in the past, keeping some capacity offline. But at the same time, you know, die sizes are getting larger, and yields are becoming a little bit more of a challenge for them. I guess it would be good to hear your perspective on how you see that dynamic playing out. Yeah, no, it's just...
Speaker Change: Got it that's helpful and for my follow up I know DRAM is not a huge part of your business today.
Christopher Parkinson: There is some talk around memory customers as they ramp HB, maybe being a little bit more discipline than they've been in the past keeping some capacity offline.
Christopher Parkinson: But at the same time die sizes are getting larger yields are becoming a little bit more of a challenge for them.
Christopher Parkinson: It would be it would be good to hear your perspective on how you see that dynamic playing out.
Bertrand Loy: Yeah, no, it's a great question. So I mean, of course, we will benefit from the increase in wafer starts driven by increased demand for HBM. But, you know, an HBM.., chip is essentially a, you know, a DDR. 5 chips, I mean the core memory cell is the same. And what it means is that.
Speaker Change: Yes, no it's a great question.
Bertrand Loy: So I mean of course, we will benefit from the increase in wafer starts driven by increased demand for HBM.
Bertrand Loy: But.
Bertrand Loy: <unk>.
Bertrand Loy: Ship is essentially a.
Bertrand Loy: DDR.
Bertrand Loy: Five chips.
Bertrand Loy: Core memory cell is the same.
Bertrand Loy: And what it means is that.
Bertrand Loy: You know, we don't have an additional wafer content opportunity with an HBM chip. But we think that this is gonna change because we know that all industry participants are now really focused on improving the performance of the core memory cell. And to do that, they are turning to EUV, and they are also considering adopting some 3D architectures in the overall DRAM architecture, all of which will open up a number of new opportunities for us, in terms of photoresist filtration, in terms of EUV pods, and then, of course, in terms of ultra-advanced materials and etching chemistry. So, again, today we are enjoying the increase in wa And in a few years from now, we will enjoy the increase in content per wafer in DRAM.
Bertrand Loy: We don't have.
Bertrand Loy: But an additional.
Bertrand Loy: Wafer content opportunity.
Bertrand Loy: With an H b.
Bertrand Loy: Chip, we're saying that this is going to change because we know that all industry participants are now really.
Bertrand Loy: Very focused on improving the performance of the core memory, so and to do that.
Bertrand Loy: Turning to <unk>.
Bertrand Loy: And they are also considering adopting.
Bertrand Loy: Adopting some three D.
Bertrand Loy: Architectures in India overall, DRAM architecture, all of which will open up a number of new opportunities for us in terms of.
Bertrand Loy: Photoresist filtration in terms of.
Bertrand Loy: <unk> pods, and then of course in terms of advanced materials and <unk>.
Bertrand Loy: It shouldn't chemistries so.
Bertrand Loy: So again today.
Bertrand Loy: Enjoying the increase in wafer starts.
Bertrand Loy: And in a few years from now we would enjoy the increase in content per wafer in DRAM.
Christopher John Kapsch: Thank you, and we will take our last question from Chris Kapsch with Lutz Capital Markets.
Bertrand Loy: Thank you and we will take our last question from Chris Capps with loop capital markets.
Christopher John Kapsch: Yeah, good morning. So, my question is a follow-up on the memory market, but focused on NAND. And just, Bertrand, your willingness to share a little bit more color around the role that Molybdenum will have in the technology roadmap sounds encouraging. But is it right to assume this confidence and visibility is backed by a process of record wins? And more specifically, are those PORs with just, say, one or two leading memory producers of NAND chips, or is it really, you know, more broadly across the industry?
Christopher John Kapsch: Yes. Good morning. So my question is a follow up on the memory market, but focused on NAND and just willingness to share a little bit more color around the role that molybdenum will have in the.
Christopher John Kapsch: Technology roadmap as it sounds encouraging.
Christopher John Kapsch: Is it right to assume this confidence and visibility is backed by process of record wins and more specifically are those <unk> with just one or two leading memory producers of NAND chips or is it really more broadly across the industry and then as a follow up to that.
Christopher John Kapsch: And then, as a follow-up to that, are there, you know, are there instances, given the sort of still soft NAND memory, you know, backdrop, are there instances where leading producers are, in fact, looking to skip the 2XX layer node right to the 3XX layer node, where Moly will, you know, more definitively play a role? Thank you.
Christopher John Kapsch: Are there are there instances given the sort of still soft NAND memory.
Christopher John Kapsch: Backdrop are there instances, where we're leading producers are in fact looking to skip the <unk> player.
Christopher John Kapsch: Right to the <unk>.
Christopher John Kapsch: Layered node, where malibu's more definitively play a role thank you.
Bertrand Loy: Yeah, Chris, so, look, first of all, as I said earlier, I think, you know, transitions of that magnitude don't happen very often in this industry, and, you know, tungsten, to put that in context, I mean, tungsten has been the interconnect metal of choice for close to three decades in AND, DRAM, and Logic Foundry. But as architectures become more complex and with the desire of all participants to move to thin-film deposition, you have a number of new materials that present better thermal and electrical properties, and MOLLE has been on the roadmap for a long time.
Speaker Change: Yes, Chris so.
Speaker Change: Look I mean first.
Bertrand Loy: Yeah.
Bertrand Loy: As I said earlier I think.
Bertrand Loy: <unk> of that magnitude don't happen very often in this industry in tungsten to put that in context, I mean tungsten <unk>.
Bertrand Loy: Interconnect method of choice for.
Bertrand Loy: Close to three decades.
Bertrand Loy: In DRAM and logic foundry.
Bertrand Loy:
Bertrand Loy: But as architectures become more complex and with the desire of all participants to move too thin film deposition.
Bertrand Loy: A number of new materials that present.
Bertrand Loy: Better thermal and electrical properties and Marty has been on the road map for a long time.
Bertrand Loy: And for all of those things.
Bertrand Loy: And because of all of those thin-film resistivity properties and the fact that it has essentially no diffusivity into the dielectric material, which allows the deposition of that layer without a barrier layer, which is obviously very important at a time when 3D companies are trying to increase the number of functional layers without increasing the aspect ratio.
Bertrand Loy: Thin film resistors, <unk> property and the fact that.
Bertrand Loy: It has essentially no CVT into dielectric materials, which.
Bertrand Loy: Who knows the deposition of that layer without without a barrier, which is obviously very important at a time when <unk>.
Bertrand Loy: Companies are trying to increase the number of functional layers without increasing the aspect ratio. So all of that is great, but it's there.
Bertrand Loy: Good.
Bertrand Loy: The Materials that are used to deposit moly are notoriously difficult to handle and deliver, and that has been really the challenge that the industry has been trying to solve for several years now. And we think we're getting really, really close. I mean, working closely with the semiconductor manufacturers, the equipment makers, I think we are, you know, within six to nine months of the first POR decision. How is that going to play out, you know? Will they, at what note precisely will they be adopting MOLLE?
Bertrand Loy: The.
Bertrand Loy: The materials that are used to deposit Marty.
Bertrand Loy: <unk> are notoriously difficult to handle and deliver and that's that has been ready to challenge that the industry has been trying to solve for several years now and we're seeing we're getting really really close I've been working closely with them.
Bertrand Loy: The semiconductor manufacturers the equipment makers I think we are.
Bertrand Loy: Within six to nine months of the first.
Bertrand Loy: Our decisions.
Bertrand Loy: How is that going to play out.
Bertrand Loy:
Bertrand Loy: Will they at what notes precisely will they be adopting molecule as I said in <unk>.
Bertrand Loy: As I said in previous calls, it's still something that is being discussed. I think all of that is going to be a function of the perceived degree of readiness by the ecosystem, which is really a combination of the equipment makers and the material suppliers. But we think that Integris has a very, very unique set of capabilities to ease this migration to molybdenum. And this is certainly a very exciting time for the industry, very exciting.
Bertrand Loy: <unk> is it still something that is being discussed I think all of that is going to be a function of that.
Bertrand Loy: Perceived degree of readiness Baidu ecosystem.
Bertrand Loy: The ecosystem is really a combination of the equipment makers in the material suppliers.
Bertrand Loy: But we think that that integrity is a very very unique set of capabilities to ease. This migration to two molybdenum and this is certainly a very exciting time for the industry and very exciting time point in Texas.
Speaker Change: That's helpful just as a follow up.
Christopher John Kapsch: That's helpful. Just as a follow-up, given just how enabling this chemistry sounds like it will be, you highlight a couple things, the thermal management, elimination of barrier layers, those process steps. It sounds like it's very differentiated and a margin opportunity that will help material solutions. Is there any way you can quantify what the potential margin opportunity is in terms of percentages? Or is it just something that should be a tally for that? We don't really disclose specific gross margin information by product, and frankly, it would be very difficult for us to do that at the current stage of adoption of that product.
Bertrand Loy: Given just how enabling chemistry, it sounds like it will be.
Christopher John Kapsch: You highlighted a couple things in thermal management elimination of barrier layer those process steps.
Christopher John Kapsch: It sounds like.
Christopher John Kapsch: It's very differentiated and then in a margin opportunity that will help.
Christopher John Kapsch: To help materials solutions is it is there any way you can quantify what the potential margin opportunity is in terms of.
Christopher John Kapsch: Percentages.
Christopher John Kapsch: Or is it just something that should be a segue.
Christopher John Kapsch: We've made.
Christopher John Kapsch: We don't do we don't we don't really disclose specific gross margin information by product end.
Christopher John Kapsch: And frankly, that's it would be.
Christopher John Kapsch: Difficult for us to do that.
Bertrand Loy: So we will pass on that question, Chris. Fair enough. Thank you.
Christopher John Kapsch: At the current stage of adoption of that product so.
Speaker Change: We'll pass on that question Chris.
Speaker Change: Alright fair enough. Thank you.
Speaker Change: Thank you.
Bertrand Loy: Thank you. It appears that we have no further questions. At this time I will now turn the program back over to Bill Seymour for any additional or closing remarks.
Bill Seymour: Thank you. It appears that we have no further questions at this time. I will now turn the program back over to Bill Seymour for any additional or closing remarks.
Bill Seymour: Thank you for joining our call today. Please reach out to me directly if you have any further questions or you want to set up a call have a great day and you can now disconnect.
Operator: Thank you for joining our call today. Please reach out to me directly if you have any further questions or you wanna set up a meeting. Have a great day, and you can now disconnect.
Operator: Thank you. This concludes today's Integris first quarter 2024 earnings conference call. Please disconnect your line at this time and have a wonderful day.
Bill Seymour: Thank you. This concludes today's Integra <unk> first quarter 2024 earnings Conference call. Please disconnect. Your line at this time and have a wonderful day.
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