Entegris Inc 2026 Q2 Earnings Call

Earlier today, we announced the financial results for the second quarter of 2026. 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. Actual results could differ materially from those projected in the forward-looking statements. 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. Please refer to the information on the disclaimer slide in 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 reconciliation tables in today's news release, as well as on the IR page of our website at entegris.com. Joining me on the call today are Dave Reeder, our CEO, and Sukhi Nagesh, our CFO.

With that, I'll hand the call over to Dave.

Thanks, Jeff. Good morning. The second quarter was another strong quarter for Entegris as we continued to capitalize on accelerating AI-driven demand and the significant and growing investment across the semiconductor ecosystem. We exceeded our guidance ranges on all metrics. Revenue growth of 11% year-over-year was above our guidance range, driven by double-digit growth in both our unit and CapEx-driven businesses. Gross margin improved sequentially as our operational initiatives gained momentum. Strong free cash flow generation further enhanced our balance sheet and financial flexibility. Our performance reflects both improving market conditions and our focused efforts to strengthen and invest in our core semiconductor businesses. With these investments and our continued execution, Entegris is well-positioned to accelerate growth, expand profitability, and drive long-term shareholder value. Unit-driven revenues grew 10% in the second quarter.

Technology transitions continued to increase the material content required to manufacture at the leading edge. This increased intensity is visible in the strong growth in liquid filtration, CMP, in particular pads, advanced deposition materials, and selective etch chemistries. Notably, liquid filtration delivered its fourth consecutive record quarter. CapEx-related revenue increased 15% year-over-year in the second quarter, driven by significant growth in FOUPs and broad-based strength in gas filtration and purification solutions. We continue to see customers accelerate investments to support AI infrastructure with increasing activity across advanced logic, HBM memory, and advanced packaging ecosystems. Bookings across our CapEx-oriented businesses strengthened throughout the quarter, driving backlog levels higher and providing greater visibility into customer spending plans. We believe these trends reflect the early stages of a broader semiconductor investment cycle, one that should benefit Entegris through both the construction phase and the subsequent ramp to high-volume manufacturing.

With increasing visibility into accelerating customer demand, we are proactively scaling ahead of the market, unlocking capacity, expanding capabilities, and strengthening supply chain readiness. As demand continues to build across areas such as filtration, specialty coatings, FOUPs, and CMP, the visibility we have enables us to identify emerging constraints early and take targeted actions to increase throughput and unlock additional capacity before they become limiting. Leveraging our existing global footprint and prior capacity investments, we are well-positioned to meet customer needs, support technology roadmaps, and capitalize on the opportunities ahead. Turning to profitability, adjusted gross margin was another highlight of the quarter, exceeding our guidance range and reaching its highest level since early 2022. The improvement reflects stronger operational execution and the benefits of actions we have taken over the past several quarters to simplify and optimize the business.

We also continue to sharpen our strategic focus and footprint during the quarter. Given the significant and increasing semiconductor demand, we decided to exit our Life Sciences Fluid Management business in the U.S., concentrating resources on our core semiconductor businesses. Additionally, we announced plans to close our Logan, Utah, facility, our third diluted facility rationalization since late 2025, further streamlining our manufacturing footprint without impacting availability for our core semiconductor market. These combined actions underscore our disciplined approach to portfolio management and our commitment to concentrating resources in area where we have the greatest opportunities for long-term growth, differentiation, and value creation. Free cash flow was another highlight of the quarter, reaching $120 million or 14% of sales. This performance was driven by higher earnings and disciplined working capital management, resulting in a greater than 10% year-over-year improvement in our cash conversion cycle.

The strength of our cash generation enabled us to repay an additional $200 million of debt and reduce net leverage to 3.4x. Given our improved earnings trajectory and cash flow outlook, we now expect to end the year with net leverage in the high 2x range while continuing to invest for growth. Turning to the outlook for our end markets. Based on current demand trends, we now expect 7%-8% MSI growth in 2026 versus the mid-single-digit assumption we started out with at the beginning of the year. While our expectations for advanced logic and memory remain largely unchanged, we expect a mixed but modestly improving environment for mainstream logic, contributing to a more constructive outlook for the industry. The most notable change since last quarter has been the continued acceleration in semiconductor capital spending.

Momentum in both wafer fab equipment and fab construction is strengthening, as evidenced by increasing project awards and backlog growth. To put this in perspective, we are currently tracking over 20 major leading-edge capacity expansions globally, including approximately eight to 10 advanced logic facilities, seven to eight advanced memory facilities, and six to eight advanced packaging projects. We expect these investments to become a more meaningful contributor to our growth in the second half of 2026 and into 2027. The breadth of these investments is also a leading indicator of future MSI growth and reinforces our confidence in the durability of the industry's growth and the expanding opportunities for Entegris. Breaking down the specific components of our end market mix.

Advanced logic, which represents approximately 40% of our revenue, remains a significant growth opportunity as demand for leading-edge compute accelerates technology migrations and increases semiconductor complexity, playing directly into Entegris' strengths. We are already seeing this translate into strong results, including double-digit growth in Taiwan, driven by both advanced node capacity expansions and higher production volumes. We also increased photofiltration wins tied to EUV lithography and continued to see strong demand for FOUPs, reflecting our expanding content opportunity at the industry's most advanced nodes. With positions of record at the industry's most advanced nodes and a strong innovation pipeline, we are well-positioned to accelerate growth as customers continue to scale next generation AI infrastructure. Memory, which represents approximately 30% of our revenue, remains a compelling growth opportunity driven by AI-related demand and favorable technology roadmaps.

Similar to advanced logic, increasing memory complexity, tighter process tolerances, and growing performance requirements are driving greater need for the high purity materials and solutions where Entegris is differentiated. In DRAM, increasing investment activity is providing greater visibility into future capacity expansions and production roadmaps. In NAND, technology transitions and layer scaling continue to support higher output and improving demand trends, which we expect to lead to additional capacity investments. These dynamics reinforce our confidence in the long-term growth outlook for memory and the expanding role Entegris plays as a critical enabler of advanced semiconductor manufacturing. Recent HBM4 and TSV CMP wins, along with approximately two times year-over-year growth in molybdenum precursor demand, are further evidence that increasing memory complexity is translating into greater content opportunities for Entegris across next generation AI memory architectures.

Lastly, mainstream logic remains mixed, and while modestly improved compared to last quarter, it continues to lag leading-edge markets. To summarize, the next phase of semiconductor investment cycle is underway, supported by healthy unit demand and accelerating capital investment activity, creating multiple growth vectors for Entegris through the second half of 2026 and into 2027. Second, our technology leadership positions across key product lines, including CMP and selective etch processes, filtration and purity solutions, and FOUPs, combined with our growing presence at the industry's most advanced technology nodes, continue to strengthen our competitive advantage, increase our strategic importance to customers, and provide additional content opportunity. Finally, execution remains a key differentiator. We are expanding capacity and margins, strengthening cash generation, simplifying the portfolio, and enhancing financial flexibility while proactively investing in next-generation products to meet increasingly stringent customer demands and capture future growth opportunities.

These trends reinforce our confidence in Entegris' long-term growth algorithm of above-market growth and margin expansion. Our technology leadership, expanding advanced node exposure, and disciplined execution are positioning Entegris to become the foundational materials platform underpinning the build-out of global AI compute infrastructure. Our strong results this quarter are a direct reflection of the dedication and execution of our employees around the world. Their commitment to serving customers, advancing innovation, and operating with discipline continues to differentiate Entegris. With that, let me turn the call over to Sukhi to discuss the financials.

Thanks, Dave, and good morning, everyone. I'm thrilled to be joining Entegris at such an exciting time for the company and the industry. The combination of market leadership and technology, strong customer partnerships, and significant growth opportunities ahead reinforces my confidence in the long-term potential of the business, and I look forward to working with the team to help unlock that potential. Q2 sales were $883 million, an increase of 11% year-over-year and above our guidance range. Our GAAP net income was $94 million, and our adjusted net income was $143 million, an increase of 42% from a year ago. Both top and bottom-line metrics were above the high end of guidance. Gross margin on a GAAP and non-GAAP basis was 47.6%. The sequential improvement reflected continued progress in operations even as we continued to invest for growth.