Entegris Inc 2026 Q3 Earnings Call

Good morning, everyone. Earlier today, we announced the financial results for the third 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, and 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, and good morning. Entegris had a strong third quarter. Revenue increased approximately 25% year-over-year to a record of slightly more than $1 billion, and adjusted gross margin improved materially more than expected, almost reaching 49%. Demand remains strong across advanced logic, advanced memory, and throughout the semiconductor ecosystem, supported by continued investment in AI infrastructure. As customers ramp increasingly complex technologies, they are relying more on Entegris for technical performance, quality, and reliability. Our ability to deliver on those commitments is strengthening our customer partnerships and creating new opportunities across the portfolio. Commercial engagement across Entegris has never been stronger. We are engaging earlier in our customers' technology roadmaps and seeing a clear progression from co-development to qualifications and plan of record wins. That is increasing our content opportunities and strengthening our leadership position in the industry's most important technology transitions.

While the demand environment remains constructive, the quarter also reflects the progress we are making operationally. We are focused on increasing manufacturing output, improving productivity and yield, strengthening and centralizing procurement, and generating a higher return from our installed capacity. Our teams are identifying and resolving emerging constraints, and we are improving our ability to convert strong customer demand into revenue. Growth continued to broaden in the quarter, with both APS and MS delivering strong double-digit growth. Regionally, growth was strongest in the markets investing at the leading edge. Taiwan remained our largest growth contributor, but we also had strong momentum across Korea and Southeast Asia. Additionally, double-digit growth in North America highlights the breadth of the growth we are seeing across the semiconductor ecosystem. Unit-driven revenue accelerated from approximately 6% in the first quarter to 20% in the third quarter.

That is roughly twice the rate of underlying wafer start growth we expect for the year. This revenue growth reflects both higher industry volumes and increasing Entegris content as semiconductor processes become more complex, require new materials, and new plans of record move into production. That is only one side of our portfolio. Across our CapEx-related businesses, revenue increased from a modest decline at the beginning of the year to more than 35% growth in the third quarter, particularly with respect to WFE. We anticipated some of this strengthening and have been working for several quarters to unlock the significant embedded capacity across our manufacturing network by adding headcount, improving productivity, and increasing inventory to better support customer demand and manage lead times. Those efforts delivered in the third quarter. Our teams increased production, exceeding our expectations, and converted more backlog into revenue, resulting in growth above expectation.

Our commercial activity is also translating into tangible wins across the portfolio. Let me give you a few examples. In APS, we recently won a significant EUV filtration application at 2 nanometer. In MS, we earned an advanced materials plan of record with a major smartphone and technology provider. Additionally, we won multiple CMP plans of record in the quarter with leading memory providers. These new plans of record are important proof points. They span both of our segments and multiple technology applications, demonstrating the breadth of opportunities we can address as semiconductor technologies become more complex. As these design wins move into production, they expand Entegris' content opportunity and support future growth. Reflecting the strong demand, book-to-bill remains significantly above one, with backlog up more than 35% sequentially and more than doubling compared to last year.

Customers are also providing longer planning horizons, giving us greater visibility into their capacity ramps and the Entegris content required to support those ramps. Turning to profitability, we delivered another quarter of adjusted gross margin improvement, reaching 48.9%, while adjusted EBITDA margin exceeded 30%. Adjusted gross margin has expanded more than 500 basis points from a year ago and reached the highest level in more than 25 years. This improvement reflects higher volumes, improved yields, and our continued focus on productivity. They were also achieved despite continued investment to support future incremental customer demand and higher performance-based compensation. These strong results are independent of any material pricing benefit. The operational improvements we are making are strengthening the underlying earnings power of the business and reinforcing our confidence in additional margin expansion over time. Stronger earnings are also translating to stronger cash generation and faster de-leveraging.

During the quarter, we fully repaid the 2029 term loan, another important step in strengthening the balance sheet and increasing our financial flexibility. Sukhi will provide more detail in the financial section. Turning to the outlook, the industry backdrop remains supportive of continued growth and is consistent with the framework we've discussed throughout the year. We expect approximately 8% wafer starts growth in 2026. Leading-edge logic and memory have experienced the strongest growth this year, with utilization at advanced nodes remaining high. We are also seeing gradual improvement in mainstream utilization, although that part of the market remains the most underutilized. Industry CapEx trends continue to strengthen. Projects are progressing from construction to equipment installation and ultimately to production. The breadth of our portfolio allows us to create value across multiple phases of the investment cycle as customers build and equip new capacity and as those fabs move into production.

The areas attracting the greatest investment, particularly advanced logic and advanced memory, are also among the most materials- and purity-intensive areas of semiconductor manufacturing. As technology complexity increases, so do the opportunities for greater Entegris content, reinforcing the value of our full portfolio. We are encouraged by what we are seeing across the two drivers of Entegris' business: healthy wafer demand and significant investment in the capacity that will then subsequently support future wafer growth. In summary, the third quarter was another strong step forward for Entegris. Growth is accelerating and broadening across the business. Customer engagement is translating into new plans of record, and improved execution is translating to stronger financial performance. The progress we are making is tangible. We are winning with technology and solutions, increasing the output and productivity of our manufacturing network, and strengthening our financial position.

There is more work ahead, but the team is delivering against our priorities, and I am encouraged by the progress we've made over the last 62 weeks. I want to thank our employees around the world for their hard work, dedication, and commitment to our customers. Before I close, I want to remind you that we will be hosting our Capital Markets Day on November 9th, and we look forward to seeing many of you there. We have focused today on our third quarter performance and the progress we are making across the business. At our Capital Markets Day, we will discuss why we believe Entegris is uniquely positioned to capitalize on the next phase of semiconductor growth, our AI-native strategy, and our roadmap for long-term value creation. We look forward to seeing you there, and if you have any questions regarding the event, please reach out to Jeff.

With that, let me turn the call over to Sukhi to discuss the financials.

Thanks, Dave, and good morning, everyone. Q3 results provide strong evidence of the operating leverage and earnings power we see in the business. We delivered record sales of $1.006 billion in Q3, an increase of 25% year-over-year and 14% sequentially. The strong revenue performance was broad-based, with APS up 31% and MS up 16% year-over-year. GAAP net income was $158 million, and non-GAAP net income was $190 million, an increase of 73% from a year ago. Both our top and bottom line results exceeded our guidance. GAAP gross margin was 49.7% and adjusted gross margin was 48.9%, an improvement of 130 basis points sequentially and 530 basis points year-over-year. Sequentially, adjusted gross profit increased approximately 17%, outpacing our revenue growth of 14%. The sequential underlying margin improvement reflects higher volumes, fixed cost absorption, improved yield, and productivity.