Entegris, Inc. Stock

Good afternoon. Welcome to Entegris' 2026 Capital Markets Day. I'm Jeff Schnell, Vice President, Investor Relations. And on behalf of the entire Entegris team, welcome to today. We know your time is valuable, and we're grateful you're spending it with Entegris.

Today is an exciting day for us, and we have a great program ahead. You'll hear from leaders across our business about the markets we serve, the technology and innovation supporting our customers' technology road maps and the execution we're driving tying it all together. We'll take a short break midway through, and we'll finish with an extended Q&A session. We have intentionally reserved a meaningful amount of time for that discussion, so we ask you please hold your questions until the end.

Before we begin, a reminder that today's presentation will include forward-looking statements. And we'll also reference non-GAAP financial measures. Reconciliations to these measures can be found in the appendix of our slides as well as on our website. We encourage you to read the full disclosures. And for those in the room, we ask you please mute your cell phones and your computers.

Today, you'll hear from some leaders across our business. You'll hear from Dave, our President and CEO; Olivier, our President of Materials Solutions and Chief Innovation Officer. You'll hear from Clint, President of our Advanced Purity Solutions business; and you'll hear from Sukhi, our Chief Financial Officer. Each will bring a different view of Entegris and where we're headed together as one company. And for those in person, we hope you'll take some time to visit the product showcase we have out back and interact with the broader leadership team we have here today. We have a lot to cover. So with that, let's begin.

[Presentation]

It's an exciting day for Entegris. We started the day by ringing the bell this morning, and we're going to -- celebrating 60 years of Entegris' history. We're going to end the day by talking to you about our future. And I don't know about you, but when I see those hype videos or the sizzle reel, it gets me excited. So if you don't mind, I will probably prowl a little bit up here on the stage since the last 15 months, I've spent the majority of it visiting customers, visiting our manufacturing plants around the world, visiting our suppliers to make sure that we have the supply chain to satisfy the demand that's in front of us as well as meeting with many of you, our investors.

Before we get fully started, I wanted to start with really 3 thank yous. The first thank you is thank you to you all. You have a lot of demands on your time, and there's certainly a lot of interesting news in the market on any given day. We appreciate the fact that you're spending time with us to learn about Entegris, to learn about the opportunities we see in the semiconductor industry and to also hear about our strategy to capture those opportunities. So thank you.

The second thank you is to the employees that put together today. These days don't happen by accident. There's a lot of work that goes into delivering Capital Markets Day. And thank you to the Nasdaq for hosting us, to our Investor Relations teams, communications teams and countless others at Entegris that made today possible.

And the third thank you, and then we'll start to get started. The third thank you is really to the 9,000-plus Entegris employees around the world. These are the employees that are in the manufacturing sites. These are the employees that are at our customers, the employees that are in our labs and technology centers, delivering the materials and innovation of tomorrow that will solve some of the industry's most challenging problems. And so thank you to those employees. You're going to hear from 4 executives today that are going to tell the Entegris story, but it's those 9,000 employees that write it every day.

So this year, 2026 is our 60th anniversary, but we're not here to talk to you about the last 60 years and talk about the past. We're here to talk to you today about the future, about the management team that we put together over the last 15 months to drive us into the future, the foundations that we're setting up with the transformation that we launched in the latter half of 2025 and really a transformation that was predicated on one thing above everything else, and that was execution, execution through customer centricity, execution through technology leadership and execution through operational excellence. And this is not a story where you have to wait years into the future to start to see proof points. This is a story and a transformation that's already underway. Most recent quarter, record revenue, profitability, free cash flow, record engagement with customers on road map projects and improved customer responsiveness. It's a transformation that is already underway, not a vision of the future that you only realize years into the future. So with that, let's get started.

I'm going to talk to you today about kind of 4 chapters of the story of Entegris. We're going to start with who we are. We're going to talk a little bit about where we compete. We're going to show you the market opportunity that we see in semiconductors. And then we're going to tell you how we win. We're going to tell you how we take those opportunities and we turn them into results.

Let's start with who we are. The Entegris story and the way I think about Entegris is actually quite simple. AI is driving unprecedented demand and complexity. That complexity requires technology inflections to deliver the systems that the market needs, the AI systems that are ultimately going to be the foundation of almost every industry on the planet. And so AI complexity and volume with technology inflections is intersecting perfectly with our innovation and our portfolio, Materials, which is enabling performance and Advanced Purity Solutions, which is protecting yield. And then, of course, the common thread that runs through all this is execution. The first half is the opportunity. The second half is our execution.

Entegris is roughly a $3.5 billion pure-play materials and purity platform. We're organized into 2 divisions and roughly 40% of our revenue is generated from our Materials Solutions division and about 60% of our revenue is derived from our Advanced Purity Solutions division. Geographically, we are co-located where our customers are, where our customers are, that's where you'll find Entegris. The revenue is driven about 70% by units. These are wafer starts correlated highly with MSI. And about 30% of our revenue is driven by CapEx. For those of you that remember, this used to be about 25%, but obviously, with the growth in CapEx, it's increased about 5 percentage points of total. And that 30% is split pretty equally between WFE and fab CapEx.

From an end market perspective, we're about 40% driven by advanced logic, about 30% driven by advanced memory and then, of course, about 30% driven by mainstream logic. A couple of other points to note. We are #1 or #2 in most of the markets in which we play. We have a slide later on in this presentation. We'll show you more details about some of those positions. We have more than 4,000 active patents and innumerable number of trade secrets and trade knowledge. So when you think about developing the latest materials, you think about developing the most advanced purity solutions, we protect that IP through patents and of course, through trade knowledge.

Finally, 35 manufacturing sites. If you recall, when I started 15 months ago, we had 38. We have 38 manufacturing sites now, and we've increased output about 30% while consolidating sites by about 10%. We have numerous technology centers, and as I mentioned, more than 9,000 employees around the world.

I also mentioned that we were organized into 2 divisions, 2 complementary divisions. So Materials enables performance, Advanced Purity Solutions protects yield. Historically, customers have thought of these things as 2 separate things. But as manufacturing becomes complex, they're inseparable. The complexity is creating opportunities across both of these divisions and the entire portfolio as a suite. And Olivier and Clint will actually talk about a few of these opportunities later on in the presentation.

And then finally, there's a lot of logos down here, and you'll see that they kind of span the entire semiconductor ecosystem. So remember the bottom part of this page, a little foreshadowing as we move to the next couple of slides. So that's who we are. Let's look at where we compete.

Entegris is one of the few companies that creates opportunities and competes across the entire ecosystem. So what do we mean by that? Before you ever get to the fab and you look at the input streams into the semiconductor manufacturing process, you find Entegris. We're in the subfab. We sell into CapEx. We sell into the bulk chemical providers. So before you ever get to the fab process, we're already providing input into the fab ecosystem. These input streams then move to the manufacturing floor inside the fab. They move to the cleanroom. When you look inside the cleanroom, you'll find Entegris across nearly every major process in the cleanroom, in the fab. We're in deposition, we're in etch, we're in CMP, we're in metrology, we're even in the overhead transport systems and the systems that manage contamination control in the fab. So we're in the input streams.

We're on the manufacturing floor on the cleanroom floor itself. And increasingly, you're going to see us push more into post-fab activity into advanced packaging, which historically the OSAT market did not require the complexity of a portfolio like Entegris, but increasingly, that opportunity requires the complexity in the portfolio that Entegris products provide that's needed to be able to satisfy those advanced packaging markets. We've made a couple of announcements over the last week or so. I know that Olivier is looking forward to talking about some of that later on in the presentation.

You've also heard us talk about waves of demand. So we are one of the few companies that compete across the entire ecosystem. We're also one of the few companies that participate across the entire semiconductor cycle. So for example, let me talk a little bit about what we mean when we say waves of demand.

Let's take a singular fab investment. In the first 0 to 12 months when you groundbreak a fab, there's not a lot of opportunity for Entegris. We don't sell steel and we don't sell concrete. But we're certainly working with customers on design, and we're certainly accepting POs for those fabs. About 12 months post groundbreaking, we have the opportunity for our first tranche of revenue. No surprise. This is in the subfab or the CUB, the central utilities building. So you have fluid handling, you have gas purification, bulk filtration and many other product lines that are not listed here. Somewhere around month 18, we have the opportunity for our second tranche of revenue. As you can see, FOUPs, filters, E-Chucks, again, many other product lines that we could list. But our second tranche of opportunity is associated with tool placement on that cleanroom floor and qualification of that fab and manufacturing process.

Then as you get to about 2 years, that's when we have our largest revenue opportunity, unit volume opportunity, wafer starts. So once the fab and the process has been qualified, then we start to get the wafer starts that drive the vast majority of our revenue. And as you can see and as you saw outside from our product showcase, filters, specialty gases, deposition, CMP opportunities, purifiers, we could go on. You saw many of those products outside.

I think one of the things that's most impressive about being able to participate across this entire investment cycle is that what starts as CapEx and a CapEx opportunity becomes recurring revenue. We think that is a very durable through-cycle model. So you participate in the up cycle when you have a supply and demand mismatch and you need to build out more fabs. And then you participate in the greatest part of the revenue, which is actually the recurring consumption at the end. We think that is a very compelling business model, and we think that is a business model that perhaps not all companies participate in equally. Okay. First chapter, who we are. We covered a little bit about where we compete.

Let's talk about our market opportunity. This is a complex picture. So let me talk a little bit about what this picture represents and what it depicts. When you build a semiconductor chip, you start layer by layer, and this is where Entegris starts. You start an individual layer, you build a circuit. That circuit becomes a die. That die is essentially a completed wafer. The completed wafer gets singulated and then you package a chip, those chips go on to circuit boards and ever more frequently, they go into racks that then go into systems like a data center. Entegris starts on each layer. Our materials are used, deposited, consumed in each individual layer of that circuit that ultimately builds the wafer that gets singulated to the chip that enables the performance of the system.

And along this entire stack. So if our Materials division is enabling the layer level of the semiconductor circuit, our Purity division protects it through the whole stack. So what starts pure has to stay pure through our Purity system. It stays pure with point-of-use filtration, stays pure at, at source filtration and then across the entire transport of that product through the fab and the semiconductor manufacturing process, both divisions working together in a complementary way, MS enabling performance, APS protecting purity.

So let's take that same chart and now let's dollarize it into an economy. Let's start at the top. At the systems level, it's about a $5 trillion economy. And that $5 trillion economy is supported by a semiconductor industry that's going to be greater than $1.5 trillion this year. And that $1.5 trillion semiconductor industry is supported by WFE and materials companies in a market that's about $300 billion. And so when you see Entegris down here in this $300 billion market, this market and the foundations of this market, that's how you derive all of this value. And so it's a small cost, but it's a huge, huge impact. And so this is one of the reasons why we believe that foundationally, what starts with Entegris ultimately becomes an opportunity for a huge systems market.

Okay. So the semiconductor market, we said was about $1.5 trillion, and the semiconductor industry has had many cycles in the past. We had the Internet era. We had the mobile era. We had the cloud era. And now we're squarely into the artificial or the AI era or the SI era, depending on which moniker you like. This era is driving a cycle that we haven't really seen before. In fact, I was in this building in 2021, and we were talking about how the semiconductor industry was going to be $1 trillion by 2030. I'm not sure if anyone remembers that, but we were too conservative if you can believe it. We're going to be more than $1.5 trillion in semiconductors this year, 2026.

Well, what's driving that value? It's not more units. In fact, total wafers are still below the 2022 peak. I'll just say that again, total wafers are still below the 2022 peak. So what's driving $1.5 trillion in 2026? Well, it's the value that the industry is creating. The industry is creating unprecedented value, and that's what's driving such a significant inflection. It's the value, not the volume. And as AI systems require more complexity to deliver that value, that is exactly what Entegris' portfolio is designed to enable.

So our SAM, we estimate that our SAM is going to grow about 10% CAGR through our long-term horizon, which for here, we've defined as 3 to 5 years. And let me build that up for you. So about 70% of our revenue is driven by units. We've disaggregated those units into 3 markets. Advanced logic, 7 nanometers and below, we estimate is going to grow about 11% from 2025 through our long-term horizon. Advanced memory, we estimate it's going to grow about 7%. And then mainstream logic, we estimate is going to grow about 3%.

Now of the total MSI, I'll just remind you all, mainstream logic is about 55% of total MSI. So 70% of our business is driven by unit volume correlated with MSI. This is what we believe MSI is going to grow, disaggregated into the 3 markets that we serve. 30% of our revenue is driven by WFE and fab construction CapEx, and it's pretty equally split, about 15%, 15%. We estimate that this market is going to grow about 20% CAGR from 2025 through the long-term period, which we've defined as 3 to 5 years. Combined, those 2 give us our SAM. We think the SAM for Entegris grows about 10% through our long-term horizon. Important thing to note, the near-term part of this horizon, we actually think CapEx grows faster. And then we've modeled that CapEx moderates towards the end of the cycle, and we've estimated that MSI is a bit moderate at the beginning of the cycle, but it accelerates at the end of this long term, much like that wave of demand that we showed you earlier in the slides. 10% in total, near-term years, WFE growing faster, out period years, MSI accelerating as that CapEx becomes unit volume.

We have aspirations to grow faster than that. Here's why. Materials intensity over the last 25 years has increased more than 10x. Contamination control limits have increased more than 1,000x over roughly the same time period. And so yes, AI is driving more complexity. Every generation, every era that you saw on the slides earlier is driving more complexity. That complexity driving more materials value and consumption, driving greater control limits. And what do we mean by complexity? Advanced manufacturing on the logic side today is about 2-nanometer, 20 angstrom.

The glucose in your veins, I'm not sure if anyone had one of those cookies outside, they're delicious. You should try one. But the glucose in your veins is about 8 to 9 angstroms. We are essentially manufacturing semiconductors today that are at the same size as the glucose in your veins. That's what we mean by complexity and that complexity, driving more materials, driving greater purity requirements. Those are both powerful tailwinds for Entegris. Here are a couple of examples of some of those technology trends that we see sustaining Entegris for the next decade.

Obviously, we've been in EUV for a while. You can see some of the Entegris opportunities, dry resist, EUV pods, filtration, move over to gate-all-around and backside power, again, CMP opportunities, deposition opportunities, selective etch opportunities. I won't go through all of these other than new opportunities and one we just announced over the last week. So every one of these technologies and more that we haven't shown, there will be increasingly greater opportunities for Entegris' portfolio.

Now the next slide is the one that you're waiting for. We expect to grow 500 bps faster than the market over the long term. So our SAM growing roughly 10% because of the trends that we just showed you as well as because of the fact that we're increasingly levered to advanced manufacturing, that's memory and logic, complexity plus volume for those 2 end markets, we believe that we can grow about 15% over this same time period. So roughly about 500 bps over time outperformance for the market.

One other point to note. Historically, we had about 35% of our revenue in mainstream logic and about 65% of our revenue in advanced manufacturing, memory and logic. Over this time period, that's going to shift. It's going to shift to more than 75% of our revenue being associated with advanced memory and advanced logic and mainstream logic being less than 25% of our total revenue from an end market perspective.

Okay. We're, kind of, heading into the home stretch here. We've talked about who we are. We've talked a little bit about where we compete. We've talked about the market opportunity. This next section is really about, well, how do you translate opportunity into results? How do you take potential energy and turn it into kinetic, right? It's the water behind the dam. It's the charge in the battery. Having potential doesn't mean anything, if you can't take action and actually turn that into real defined measurable results. So that's what this next section will translate for you is how do we take potential and how do we turn it into kinetic? How do we take this opportunity that's in front of us and turn it into results.

We spoke to you in the latter half of 2025 or the investment community broadly about the transformation that we were launching and that there were 3 priorities. And they were all foundationally predicated upon execution, execution in customer centricity, execution in technology innovation and leadership and execution in operational excellence. Again, this is about taking an opportunity that's in front of us and translating that opportunity into results, potential into kinetic.

So let's start with customer centricity. Historically, customers have engaged with Entegris on a business unit-by-business unit basis. And that's no surprise because we did 13 acquisitions in 15 years. And so the sales team was embedded inside our divisions and business units. Well, this changed in 2025. We aggregated the sales up into an enterprise function, and we made it one team, one team with 2 missions, 2 functions that -- underneath that one team. One function was strategic, strategic account management and planning. So this was about engaging with the customer multiple years ahead on their road map and making sure that we're developing product with those customers and managing the product life cycle. Think of it as spring is when you're launching a new product, you're getting the volume and maturation in summer, you're starting to wind down volume in the fall, you end of life the product in summer. And then you begin again with spring. So strategic account management is about engaging earlier in the cycle with our major customers and maniacally managing that product life cycle.

And then the second function is making sure that tactically, you are delivering excellence, best-in-class performance for that customer on a daily basis with the products that you're currently selling to them. So this one is strategic. This one is best-in-class execution and enablement for those customers. And it's also about dragging along more of the portfolio. So not selling to the customer just business unit by business unit, but selling to the customer, the current product line that you currently have in a plan of record and design win and then taking that product line and developing the plans such that you can then attach other products to provide a better solution for that customer. One is strategic, one is tactical, but all under one account management structure so that the customer is engaging with one Entegris, with one portfolio versus a loose confederation of states business unit model.

Let's shift a little bit to technology. Entegris has amassed a tremendous portfolio of assets through both internal organic investment as well as external inorganic investment. The next phase for Entegris is really integrating all of our capabilities into real solutions for the customer. Now what does that look like practically? We just announced an entry into the advanced packaging space with a very large advanced logic customer where we have essentially taken this acquisition of Sinmat, this acquisition of Precision Microchemicals business and our latest vertically integrated acquisition that we just closed a little less than a week ago. And we now have a TIMs solution for CoWoS packaging that we are excited about co-locating to Taiwan to be able to provide one of the most advanced TIM solutions to the market to extract heat, tremendous amounts of heat that are generated in the AI advanced packaging processes that are required in today's market. So very excited about that. I know Olivier will also give you a little bit more details about that. But again, how do we take potential and turn it into kinetic and how do we take opportunities and turn them into results. This is a busy chart.

So let me start by orienting you on this chart with our product lines across all of these technology categories. So on the left-hand side of the page, we have major fab processes. We also have some unique subcategories. The blue bubbles represent leadership positions. Entegris is #1 or #2 in this category. The white bubbles represent a top 5 position in the market. The red bubbles primarily reflect an area of -- or lack of investment in the area or lack of really any significant presence, primarily due to management time and attention or lack of investment. So blue, top 2, white top 5 position and red, really a position where both Entegris as well as these other peers do not play.

You can see we have leadership positions across deposition, across CMP, across filtration, purification, microenvironments. I won't read the entire list to you, but you can see that we have a lot of leadership positions. But I think the thing that's most striking about this chart, it's really the breadth. It's the breadth of technology that Entegris has capability in that we can bring to bear to solve customer solutions. And so we have depth and we have breadth. And we have technology leadership. And so then the question is, how do we extend that leadership? How do we extend that leadership position? Or how do we at least take that innovation to solve more customer problems in the future. And this slide explains how we do that.

Historically, Entegris has invested about 10% of revenue annually into R&D. And that investment, about half of it was going to just protect the SAM that we were currently engaged in. So 50% of our investment was not for SAM expansion. It was to continue to defend our existing SAM. If you look at best-in-class companies, best-in-class companies only spend 35% to protect their SAM. So we've developed plans to essentially take that 10% that we invest annually in R&D, and we believe that's about the right number, plus/minus. We have plans to take the 50% that we used to spend to defend become more efficient, maniacally more efficient in those innovation dollars and invest 65% on SAM expansion opportunities, both clear SAM expansion as well as frontier technologies.

And if we can do that, we can actually take our vitality index, and we can increase it by 10 points. So vitality index is the percentage of your revenue that's driven by new products. Today, about 30% of our revenue is driven by new products. Executing this should result in us driving 40% of our revenue driven by new products. And so we have great leadership positions already. We cannot stand idle. We have to take those leadership positions and through great R&D and selective inorganic acquisitions and translate that into more efficient spend of internal dollars, drive our vitality index higher. And then if we execute our plans well here, we'll actually enable our development cycles to be delivered 3x faster. So if it takes us a year to deliver products today, new products, idea to product, we don't want to deliver in 12 months. We want to deliver in 4. So we have a lot of energy through both divisions with a common AI platform around these initiatives. We believe that we can get to best-in-class over the long term. We believe that will enable us to continue to outperform the market. And when we show you that bubble chart 3 or 4 years from now, again, at Analyst Day, we expect to have new markets up there that we have been able to capture and deliver on.

Okay. We're heading into the home stretch for sure here. Operational excellence. You've heard me talk about operational excellence a lot, really starting in the latter half of 2025, and we said that there were kind of 4 pillars to operational excellence and what we meant by that. The first one was network optimization. The most efficient plant is a plant that has scale. That's why the semiconductor industry builds in campuses because that's how you get the greatest fixed cost absorption is by driving scale through your manufacturing network. So we have a lot of plans around manufacturing network optimization. As you know, we started with 38 manufacturing facilities. We now have 35 manufacturing facilities.

And during that time of reduction of almost 10%, we've also increased output by 30%. The team has done a good job here, but we've slowed this for now, given the demand environment because we still have 3 other critical parts to operational excellence.

The second one, centralization of procurement or strategic supply management. Roughly today, on a last 12 months basis, Entegris is about $3.5 billion. That's roughly $1.7 billion of COGS. That's roughly $1 billion of procurement. Historically, that $1 billion of procurement was divided into individual spending at roughly 40 manufacturing sites. We did not have the purchasing power of a $1 billion procurement company. We had the purchasing power of about a $25 million purchasing company. So what we've done, we did this earlier this year, we consolidated procurement. That enables us to engage more strategically with our suppliers. We're more relevant to them. It also helps us from a business continuity perspective. It also helps us from a cost perspective because the same way that we enjoy benefits from fixed cost leverage, so do our suppliers. So the second pillar for us, strategic supply management.

Third and fourth pillars, yield and productivity. When you talk about yield, and we've got some examples later, but when you talk about yield, most people think the avoidance of scrap. It's not just the avoidance of scrap, but it's also more units out. So it also drives fixed cost absorption. You have more units that you're spreading those costs over. So you've avoided the scrap and you've delivered more units.

And then finally, productivity. So again, a maniacal, relentless focus on labor productivity and OEE or equipment and tool utilization productivity. But it's not just a margin improvement story. This is about quality. It's about customer satisfaction. It's about business continuity, faster cycle times, better quality, better economics, happier customers. So it manifests itself through the gross margin line. Gross margins are up 500 bps on a year-over-year basis, but it's not just about the improving economics internally on our P&L. It's about improving the delivery to our customers and solving their problems through better supply management.

Let me leave you with a final thought here. AI volume and device complexity is driving the market. The market is requiring more technology solutions, faster frequency of technology inflections. And those inflections are aligning to our product portfolio in both Materials and Purity and execution enables us to seize the opportunity and deliver for our customers to solve the most complex industry problems as well as to create tremendous shareholder value. And if we do that well, we believe that we can grow our top line revenue 15% over this period against a market of roughly 10%.

And so this is my last slide. But before I relinquish the stage, I want to remind you that my presentation was at the enterprise level. So the strategy, the opportunity, the execution at the enterprise level. Olivier is going to come up in a moment, and he's going to talk to you about the Materials Solutions division. Clint is then going to come up and talk to you about the Advanced Purity Solutions division. And then Sukhi is going to bring us home and he's probably going to talk to you about the second most important slide that you want to see that has gross margin in the financials. So he's going to -- you have to wait for the end for that portion of the presentation, but he's going to bring it all together and show you how we take opportunity and we produce results, how we take potential energy and convert that into kinetic and how that translates into shareholder value.

So thank you for your time and enjoy this brief video while we wait for Olivier to come up to the stage.

[Presentation]

Thank you, Dave. As you all know, high-performance computing really drives not only more wafers, but it drives more complexity. And it's really the complexity where Entegris creates more value per wafer. Why is that? It is because every single generation of chips required for the next-generation advanced logic, advanced memory, next-generation NAND, but also advanced packaging requires more layers, new materials, more process steps. We call it the Entegris content per wafer. And it's actually not just content per wafer. It is the way you bring a molecule with a delivery mechanism with a process expertise. So let's start with the platform that we've built to enable this opportunity.

What is Material Solutions platform? It is a $1.5 billion platform that sits at the intersection of every single device evolution and device inflection. It is actually quite balanced. For those who remember 3, 4 years ago, after we acquired CMC, we had roughly 45%, 50% of our revenue in Material Solutions that was derived from mature nodes. Today, it is 70% already, 40% advanced memory, 30% advanced logic, 30% mainstream. Tomorrow, as Dave highlighted, this percentage will grow. It is a platform that is unit driven, which means that the more wafer you produce, the more revenue we produce as a recurring business model. And it has breadth, breadth around 4 major product and solution platforms. When you create a new transistor, you need new thin film to be deposited. This is where our advanced deposition, ALD, CVD business unit comes into play as well as the implantation required to dope the surface. Then you need to either planarize or etch your layer, the unwanted extrusions from your transistor device in deep trenches and vias. And this is where the second and third business unit come into play.

And fourth is a recently created business where we have grouped together unique novel materials, substrate engineering and process expertise. And this is where the future thermal interface and advanced packaging will reside. The advantage that Entegris has is not just the breadth, but it's how we connect them together. So when the architecture changes, in how many ways can we play? Well, every single device creates an opportunity for us to participate, to play and to win across advanced logic, advanced HBM, high-bandwidth memory, advanced DRAM, next-generation NAND, but also advanced packaging, deposition, CMP, etch, but also, as you will see with Clint, delivering and filtering and purifying these materials at the right level of control and purification required. Why is it important? It's because we cannot only play along these different architectures and play along these different process modules, but we can expand this opportunity into advanced packaging.

You may have followed that the last 20 advanced packaging fab announcements for every one of them, these fabs are now co-located adjacent to the front-end manufacturing fab. No longer do they sit with packaging and assembly or printed circuit board industry. Every one of these 20 advanced packaging fabs sit right next to the front-end manufacturing. There is a reason for that. The reason is the materials required, the purity requirements now are of the same nature as front-end manufacturing. This is where Entegris can play, and this is where Entegris can differentiate.

Now let's quantify the content per wafer. What happens when these different inflections come into play. Here on the slide, you can see the 4 major transitions that are ongoing, and I will go in more details in a minute through every one of them one by one. The common themes here is the multiplier effect, more layers, more content, novel materials, more process steps. When you put it together, it represents between 40%, 50% content per wafer increase up to 90% to 100% content per wafer increase over the planning horizon, which, as we said, is 3 to 5 years. More wafer creates the growth, and we all like it. This is called MSI. But more complexity creates the outgrowth, the outperformance that Dave mentioned.

So let's walk you through each of these 4 transition one by one, starting with logic. As many of you know, the industry transitioned 3, 4 years ago from FinFET structures to now gate-all-around, integrating now backside power delivery on the back of the chip. It will continue to shrink going to 1 nanometer, 1.4, 1 nanometer and then over time, transition to technology called CFET early in the next decade.

Why does it matter for us? It matters because it means that every one of the transition creates new deposition challenges, selective etching challenges, new CMP challenges. Over the last 3 years, we have increased by 2.5x the number of engagements. So when I put a number here of 130 engagement, what does it mean? It means that today, we have 130 qualifications ongoing with leading-edge top 6 of the industry, but also leading-edge OEMs. Three years ago, we had less than 50. This is a 2.5x multiplier effect. And not only do we engage more, but we are winning more.

Over the last 12 months, we have landed significant plan of record wins, POR, in area silicon deposition, but also in dielectric and metal CMP. And not only are we delivering 50% more content on that opportunity, but we are also expanding in new served available markets. Let me give you 3 examples of these.

Next-generation MOR, metal oxide resist. These are photoresist materials being deposited by CVD. As you know, today, these are chemically amplified resist being deposited by track tool. One of the next-generation way of doing it is to deposit these CVD layers through the [ NEX ] devices. We are entering next-gen MOR, but we're also entering selective etching as well as front-end of the line dielectric and new metals. So think about advanced logic for us as accelerated engagement, new POR, new SAMs entry.

But actually, AI compute is not just advanced logic. It needs tons of memory. I think most of you are aware of it, and we've all seen it over the last 2, 3 years. As AI required more complexity, it requires more bandwidth, more high-bandwidth memory, more DRAM, and we'll see in a minute more NAND as well. So what are the inflections that we see? The current generation of DRAM is called 6F square in terms of architecture of the chip. And it's now being coupled with CMOS-bonded array, CBA to move up to the next level of density, performance. Some memory companies are now moving to 4F square, which would bring new opportunities. And at the same time, we've seen HBM going from HBM3 to 3E now to 4 and starting to ramp 4E. Every one of these transition and even in the future, 3D DRAM, when you start stacking up the device architectures in DRAM will create more layers, more interface, more deposition films, more etching requirements.

In the last 3 years, we have more than doubled the number of engagements with memory players. And the proof point is that we are winning. We have landed in the last 12 months alone, significant plan of record wins. Take a few examples on new implantation, new way of doping the structure, but we've also landed very significant POR wins on -- through silicon via application, which are very important for HBM computing. And we are SAM expanding. A few examples here around the CMP, around silicon etching, SiGe and novel materials. So again, for memory, 40% to 50% more content per wafer and new SAMs entry.

Now let's look at NAND. The same theme and philosophy applies. This NAND has moved now to 300 layers. We see that moving to 500 layers over the next 2 years, possibly 1,000 layers by the end of the decade. Every one of these will require more layers, deeper channel materials, more selective etching, new metallization schemes. And we are winning. We've taken significant share position in high selectivity nitride etch applications. We've taken, and we'll see that in a minute, great positions in molybdenum deposition as well as in the hard mask CMP. Not only do we want to do that for these 3 applications, but we also want to enter new served available market. The 2 that I would like you to remember are really cryogenic etching. Cryogenic etching allow you to actually go deep into these trenches and vias. And this is a new market that we haven't historically played as well as allow us to enter hybrid-bonding CMP, which would be crucial for next-generation NAND. But the best example of this new SAM is molybdenum.

Molybdenum started in 2017. It started as a chemistry. Molybdenum is a solid material, so you have to sublimate the material to get it into a vapor phase. And we started developing the chemistry and the precursors back then in 2017 and '18. And you could argue actually 1 or 2 other competitors can do that as well. The difference is over the last 5 years, we have developed -- we have an example in the next room, a unique industry-leading high-pressure fill-stable canisters. We've also developed specialty coatings that we believe are not only IP protected, they are, but also enable the customer to have the longer duration, longer utilization time in process.

Over the last 3 years, we've expanded that from a chemistry, a coating, a canister to a high-volume manufacturing of solid-state delivery. So this is Entegris playbook. This is Material Solution playbook, where we combine not just technology, but 4 different technology into a solution. And it shows over the last 12 months, Entegris has landed 2 major plan of record with leading OEMs and 2 major plan of record with end-user manufacturers in the memory space.

We expect our volume of molybdenum to double in 2027 versus 2026 as a result of it. This approach is the one we want to duplicate for advanced packaging. So what happens when we deploy the same playbook move early and when AI moves from a chip level to system level. As you all know, CoWoS and EMIB are basically the first-generation advanced packaging. We all foreseen the industry the move towards panel-level packaging as well as in the future, more system-level integration and complex integration. Again, what does it mean for us? It means more layers, more interfaces, more planarization challenges, more bonding challenges. What we have done is exactly the same play that we did in the last 10 years in the 3 other device type. We've entered through silicon via and redistribution layer CMP as a first anchor point. We then expanded into carrier removal applications. As well as post-etch residue cleans. So the anchoring point was really CMP cleans and handling. From there, we intend to aggressively grow.

I'm very pleased to actually talk to you today about the 2 steps we've announced last week that Dave made reference to. Step number 1 was to take the background IP we had developed over many years in silicon carbide, combine that with a techno bolt-on acquisition of Advanced Abrasives in the diamond powder technology and the unique ability to planarize these very hard substrates for silicon carbide and then to localize this technology in Taiwan for a famous customer. This combination of background IP technology bolt-on acquisition, localization for partner will make us enter in a very serious way silicon carbide for advanced packaging, where we have great hopes for the coming years.

And silicon carbide is the #2 best conductive materials in the world. And the reason these customers want to use it because they want to get the heat out of the system to heat spread out and to decrease the power management of the data centers ultimately. But what is the #1 best conductive material in the world? Diamond. So last week, we also announced that we have partnered exclusively with a company called Element Six. Element Six is the world-leading synthetic diamond producer. The world-leading synthetic diamond producer is now partnered with Entegris. We will functionize the surface. We will CMP the surface. We will bond the surface and offer some of the leading companies unique industry-ready HBM solution to bring to market.

These are 2 very significant moves where we are not entering the mainstream commodity part of advanced packaging, we are entering the top end of advanced packaging, the differentiated side of it. When we put all these inflections together, advanced logic, advanced DRAM and HBM, advanced NAND, advanced packaging, the SAM expansion becomes significant. If you -- for those who recall, just after the CMC acquisition 5 years ago, we were talking about a SAM of roughly $4 billion to $5 billion. I think it's $5.5 billion today. We envision that to double in the next 4 years, 3 to 5 years planning horizon.

With the complexity with the layers, with novel materials and the number of -- increasing number of process steps, we will see in MS a 10% SAM growth opportunity that we're very excited about. But the next question, as Dave said, is how do we capture it? So a large SAM is valuable, but what must Entegris do to win it? Well, we have to engage earlier. So first priority is to ensure that we actually bring our innovation cycle and engagement, not just at pilot line level of the customer, but at what we call pathfinding, engaging with pathfinding teams of the famous customers and of the famous OEMs, engaging at module integration level, early engagement.

Second, that we convert our NPDs through an AI-native approach. I will show you an example in a minute. Our ambition is that over the next 3 years, 100% of our NPDs be AI native. What do we mean by that? It means that you don't go to a customer with a design of experiment anymore. You go to a customer with a predefined AI model together with the design of experiment. This is a new way of engaging. This is a new way of differentiating for Entegris. 100% of our NPDs will become AI native. And we wanted to do that at scale so that we can shrink the development time on one side, but also transfer the data packages to our manufacturing teams so that they can scale in quality with the right manufacturing facility in the world.

So the next slide will show you that this approach is actually already working. This is not just hope in the future, but the proof points are here. Between 2023 and 2026, we have increased the number of engagement by 2.5x, number of qualifications with customers. Over the next period -- over the same period, sorry, we have increased by 2.5x the number of wins, plan of record wins. This has resulted into an acceleration of our vitality index from what used to be 27%, 28% close to 35% today, 34.5%. Our ambition is to get to 40% over the next 3 to 4 years and to be the industry-leading engagement technology development partner of choice. So AI is not only accelerating innovation, but it's also accelerating manufacturing scale up. And what changes when you bring these agents and the connected data together?

Let me give you 2 examples before we wrap up. Typically, this is an electrostatic chuck. So you have an example in the next door, in the next room, but these E-Chucks go inside the process chambers. And typically, it took roughly 3 years to develop them from ideation to testing to productization to scale up. We've been able to develop a new generation of E-Chucks in 12 months only from ideation to high-volume manufacturing. These E-Chucks today not only does that, it actually performs 30% more efficiently from a thermal conductivity standpoint. And it's today in customer process at the most advanced manufacturing logic fab in the world, 12 months versus 3 years.

Let me give you another example. We are now starting to integrate every one of the data sets, supplier of customer data into our manufacturing advanced process control data sets of our 4 walls factories with the outgoing quality control metrology side of our customers. That data integration will enable us to do it at scale, not only to innovate faster, but to bring these products to market and to scale them with the right level of quality control.

So let me translate that into a financial ambition. As Dave said, MS supports not only a 10% SAM increase, but we foresee the combination of MSI growth at 6%, 7% with more content per wafer, more plan of record and novel materials to give us roughly 13% to 15% ambition, 6%, 7% MSI, 13% to 15% revenue ambition. This is what Material Solution will enable in the coming years.

And probably more importantly is at the end of the day, what matters is the customer. It's these top 6 customers of the industry, foundries or IDMs and it's the top 5 OEMs of the industry. What they're asking us to do is to accelerate innovation to become their technology development partner of choice. What MS will do is to enable the next-generation node. What APS will do is to enable this at high yield. Thank you.

[Presentation]

So we've heard 2 great presentations today so far from Dave and Olivier. Now we're going to take a 10-minute break. There's coffee and tea outside, use restrooms and we'll begin precisely at 2:25 local time.

[Break]

I could just ask everybody to take their seats. We're going to get going again with the second half.

[Presentation]

Welcome back. Before the break, Olivier spoke with you a little bit about how our materials, our advanced materials enable the semiconductor ecosystem. Today, I'm going to share with you a little bit about the other side of the Entegris value proposition. And that's how our Advanced Purity Solutions enables those materials to be manufactured and enables our customers to maximize their yield in their semiconductor factories.

So what's amazing about the purity in the semiconductor industry is that with each new technology node, there's new challenges and new demands to reduce contamination. There's new demands with new materials, with more process steps and with increased process complexity. And that's really where APS plays. We work to -- with our customers across the semiconductor industry to minimize contamination. And as those challenges are getting greater, you're seeing the value proposition that Entegris offers through APS. You've seen it in our recent results. And today, I'm going to share with you a little bit about the overall market for contamination control. I'm going to tell you a little bit about how we're unique in how we support our customers. And I'm going to tell you about how we're leveraging our operations prowess to deliver measurable results not only to our customers, but also to shareholders.

So with that, let me begin and tell you a little bit about APS. So APS supports advanced logic, advanced memory as well as the mainstream markets. We're organized into 4 different segments, starting with fluid management and transport. And this part of our business moves and keeps safe all of the critical liquids in the semiconductor ecosystem. Essentially, this is the lifeblood of the semiconductor industry. Our microenvironment business is all about the protection of substrates in the semiconductor industry. So substrates are things like wafers or reticles, such as EUV reticles that you've seen out in the showroom.

And then lastly, we have our liquid and gas microcontamination control businesses. And basically, these 2 businesses are about filtering and purifying critical liquids and gases in the industry. There's a common thread through these 4 businesses, and it's all about protecting the purity of advanced materials in the semiconductor industry. Our business is about 45% CapEx-driven and 55% unit driven. For those of you that have followed Entegris for a while, you'll know that we used to have a higher percentage of unit-driven demand. But what we've seen over the last 12 months is an explosive demand for new fab infrastructure. So AI is driving new fab builds, and we are there right at the start of those fab builds. We're there providing fluidic systems. We're there providing our gas purification systems.

And then what's really exciting about our business is we move from providing CapEx solutions to unit-driven solutions as those fabs ramp. So what you will see over the upcoming months and years is you will actually see the unit-driven part grow larger, you'll see the pendulum swing back as we start to provide more of our filtration and purification solutions that are required as the fab infrastructure builds start to turn to producing wafers.

So let's talk a little bit about APS across the semiconductor ecosystem. So the semiconductor ecosystem is an amazing place. You think about it, we start with some water, some sand, some basic elements. We combine them together. We move them through a semiconductor factory. And at the other end, a few months later, a chip comes out that told your Uber driver to take a left-hand turn on 43rd Street to drop you off here for our 60th anniversary. In not so long of a time, what you're going to see is that will be an autonomous vehicle that drops you off here. And it's going to do that not only safely, more efficiently, but you're also going to be able to avoid that jaywalking Elmo on his way to Times Square. That's almost magical what we do in this ecosystem.

But I'm going to let you in on a secret to the magic. The secret ingredient to the magic is purity. So Dave spoke about this earlier. We're dealing with atomic layers on semiconductor chips. And when you have atomic layer precision, you need purity because without purity, you're going to have defects, you're going to have reliability failures and the chips won't work on the other end. So if you look at our semiconductor ecosystem, APS provides products to the bulk chemical manufacturers. As a matter of fact, one of our largest customers is MS. We provide products throughout the fab, whether it's deposition, metrology, CMP, lithography, the overhead transport solutions everywhere in the fab, we touch the critical substrates and critical materials.

And increasingly, we're participating in advanced packaging. So a great example of this is our high-viscosity dispense pumps, a technology that we developed for the lithography market in the fab, but we've been able to take into advanced packaging to enable some of the new technologies that are being used in the industry today. So really, if you think about the Entegris advantage, it really comes from the fact that there's not just one source where you can see contamination. It's throughout the ecosystem, and we participate throughout.

So let me tell you a little bit about some of the different areas that we're focused on for reducing contamination control. If you listen to me talk over the years, you've heard me talk a little bit about the importance of reducing particles. So as we reduce feature sizes on a wafer, it's very important to make sure that the particle itself doesn't introduce a defect. We talk about these in terms of killer defects. And as line width shrunk, particle counts needed to be managed more and more. What we've seen as we've gone from our older technology to gate-all-around and ultimately towards CFET is an increase in the need, the purity requirement. So a 10x increase is taking place today.

What the industry now is looking more and more towards though, are contaminants beyond just particles. So things like metal and ionic contamination or organic impurities are becoming increasingly critical to ensure that the specialty materials are reliable and work as intended. And what's amazing about this and a great opportunity for APS is these new contaminant types have much higher purity requirements. So you see where I was talking about a 10x increase in purity requirements for particles, it's a 65x increase for ionic contamination or 25x for organics.

So it's -- a key thing to remember is we're not just filtering contamination a little bit better. What we're really looking at is we're filtering and purifying new contaminants and new sources in the factory. The economics become really clear when you look at AI. So AI is driving new chips, which require new technology, more layers, more process steps. But an interesting fact is when you compare AI chips versus smartphone chips, they're actually much larger. So here are 2 wafers, both for the N3 technology node, same process node, one for smartphone, the other for GPU used in AI. And what you can see is that if you have the same defect density on both of these wafers, the wafer with the GPU because it has less chips has a yield of 60% versus a yield of 90% for smartphone die. So you have the same defect density, but a very different economic outcome for AI. This is one of the factors that's driving our leading-edge customers who are developing solutions and products for AI to turn more and more towards Entegris to make sure that they minimize contamination in the line.

Let me turn the page a little bit and talk about ionic contamination, metal contamination. So a recent experience I had is we had a customer that came to us a few months ago, and they were experiencing problems with parametric yield at the end of the line. Very specifically, they had a problem with a parametric parameter called gate leakage. And so on a semiconductor wafer, you have billions of transistors and each of those transistors is a switch on or off. And if you have a problem with gate leakage when that switch is meant to be off, you actually have electrons that are traveling through the transistor now that's a problem because it leads to heat, it leads to electrical loss. And long term, it can lead to reliability problems. Of course, reliability problems become increasingly important when you have mission-critical applications such as autonomous vehicles.

So our customer turned to us. We went in, we worked with them to evaluate and found out that one of their critical liquids had increased levels of ionic contamination or metal contamination. We introduced our Protego ion exchange purifier, an example of which I'd be happy to show you in the showcase. And we were able to reduce that ionic contamination by 90%. More importantly, we didn't just stop there. We worked with our customers' supplier, our customers' bulk chemical supplier, which was providing material that had that increased level of ionic contamination. And we were able to introduce solutions upstream to eliminate that ionic contamination from ever entering into the factory.

So important point to note is we don't just treat contamination when it occurs. We're actually working to eliminate it upstream. And that is, again, another key differentiation between Entegris and our competitors.

This same principle applies to the wafer. So one of Entegris' leading products is the front-opening unified pods, or FOUPs. This is a product that we invented about 30 years ago. And it's a product where we have leading market share in the industry. And one of the reasons that our customers turn to us is because we have knowledge about everything that is required to make sure a FOUP keeps the wafer safe.

So when you think about a front-opening unified pod, you hold 25 wafers, the value of those wafers can be multiple millions of dollars. And I often say there's 2 things that you don't want your FOUP to be. One, you don't want it to be a sponge. You don't want it to suck up contaminants because there's a risk that then those contaminants can be leached on to the wafers later and impact yield.

And the second thing that you want to avoid is you want to avoid the FOUP from becoming a pickle jar. And by that, I mean you have this enclosed environment, and the wafers stay in that environment longer than in any process tool in the factory, longer than in a litho tool, etch tool, deposition tool. In many ways, we're not just a transport system in the factory. We're actually in an environmental chamber that the wafers sit in. And so it's really important that we do not allow those wafers to cross-contaminate each other.

And so the way we manage this is with 2 technologies that Entegris pioneered. One is something we call our Entegris barrier material, which is a special polymeric solution that prevents the FOUP from absorbing these materials. And the second is through the use of purge technology, advanced purge technology in our FOUPs. With that advanced purge technology, we're able to keep the wafers clean.

And as a great example is when you actually are opening and closing the FOUPs, you can measure the relative humidity, which is a key parameter that our customers want to minimize. We can keep the relative humidity below 5%, which is 8x better than the competition. And so these are some examples that I've given as to why we're able to really start to outgrow the market in general.

If you think about the market and you think about the market that APS participates in, there's 3 forces that compound together. One is tighter purity requirements. There are tighter purity requirements for each new technology node. The second is there are new contaminants with new materials, with new process steps, there are new contaminants. And the third is there's more control points. There's more tools in the factory, you have more layers, you have a need to control contamination, not just in the factory, but also upstream.

And so it's not just about the industry having more wafers, but it's about these 3 factors that compound together that drive more need for advanced purity solutions. And it's for this reason that APS can grow faster than the semiconductor market. So when I look at our long-term available market over the next few years, I see that growing to about a $10 billion market for purity solutions.

More purity across more contaminants, more points in the process is really what's driving this growth. And the way we will capture it is by engaging earlier, innovating faster and having a strong manufacturing network. And so that brings us back to this 3-pillar slide that Dave first introduced and Olivier built upon, where we're looking to focus on the customer, to elevate our engagement with the customer earlier in the process, where we are extending our technology leadership. We're #1 and #2 in most of what we do, but we don't want to stay complacent. We have to keep investing in technology to advance, and then to leverage our operating scale.

So let me give a few examples to expand on these 3 pillars. When I think about customer centricity and what's unique about APS, a great example is around the lithography model -- or module. So to develop lithography solutions in a semiconductor fab, you have suppliers of critical chemicals, resist manufacturers, you have equipment OEMs that provide all the process tools. And then, of course, you have the chip manufacturers themselves. They all have slightly different needs, but they all need to work together to develop a process that not only technologically works, but also has an economic and appropriate yield.

Entegris is able to partner collaboratively across all 3 early on in the technology development cycle. A great example of this is with EUV. If you go into our showroom outside, you'll see an example of our EUV reticle pod, a product we collaboratively developed working through the ecosystem as a whole. This early engagement allows us to have differentiated durable early customer positions that are sticky throughout the life cycle of a product.

So customer intimacy tells us what problems matter, but really technology helps us determine how quickly we develop the technology is -- gets our foot in the door and enables us to have solutions that customers like. And what I'm showing over here on the right side of the screen is one of the ways in which we've been increasingly using AI to develop products. So we're increasingly leveraging AI around modeling and solution to develop solutions faster.

The example I show here goes back to, once again, our FOUP technology, where we've developed digital twins that are enabling us to introduce and iterate products faster to the market and solve harder customer problems that much faster. If we engage early, if we develop the technology sooner, that is a key factor that enables Entegris to not only stay ahead of the competition, but also to continue to grow our overall market.

So customer technology. And lastly, I want to talk a little bit about manufacturing piece. Over the last several years, we've spoken about our strategy to build out our manufacturing network in region for region. We've done this in Japan, in Korea, in Taiwan, in the United States. And that's super important because we need to be close to our customers to have a resilient supply chain and to develop solutions to meet their needs earlier.

What you've seen though over the last year is that we've been able to really maximize the productivity across the network. So in our recent results, you've seen that not only were we able to scale by about 31% year-over-year, but we were able to deliver 850 basis points of operating income improvement over the last year, leveraging the manufacturing network more efficiently.

One of the ways we're doing that is increasingly using AI ourselves to find ways to improve our yield, to improve our cycle time in the factories. This is a very powerful part of the Entegris and the APS value proposition. And fundamentally, when we combine leverage with purity demand, that drives a very compelling long-term model.

So last slide. I want to kind of leave you with a few key points. AI is driving more device complexity. And that increased device complexity is driving higher purity requirements. The more purity requirements that are out there, the more so -- the higher value problems that APS can solve. When we engage early, when we innovate faster and when we scale through our network, that's going to allow us to have upper teens CAGR over the next few years.

Overall, it's very, very, very important to note that purity is one of those magical elements in the semiconductor industry that makes it successful. And as semiconductor complexity increases, purity becomes more valuable and a more important ingredient. So before I turn it over to Sukhi, I just want to kind of emphasize that innovation creates the opportunity for us, but execution is really what's going to drive profitable growth. And in the next section, Sukhi is going to show how both APS and MS translate this growth into profitability, cash flow and ultimately, shareholder value. Thank you.

[Presentation]

Well, let me -- this is my presentation. So thank you, everyone, for coming. Thank you, Clint, and good afternoon. What I will be demonstrating here really is how the opportunities you heard from Dave and Olivier and Clint translate into higher earnings, accelerating cash flow and ultimately, greater shareholder value.

Our financial framework is significant and also straightforward. We expect to organically double the revenue over this period we talked about, deliver a step change in profitability, grow earnings substantially faster than revenue and convert more of these earnings into free cash flow. This is a powerful value creation cycle. And the common theme here, you've heard from our leaders here is the execution of 3 transformation pillars: customers, customer centricity, R&D or technology leadership, and operational excellence.

So our value creation framework. Let me anchor you with how do we deliver this. First, our value creation framework is built upon 3 distinct priorities. First is compounding double-digit revenue growth. We're starting with a very attractive portfolio approximately -- like you heard, approximately 70% of our revenue today is leading edge, both advanced logic and advanced memory. That's going to become 75% over a period of time. These are the areas that are fastest growing for -- in the industry, and that's what we're levered to.

Second is profitability. As we scale, volume provides leverage, but the opportunity is much broader for us. The bigger margin opportunity is coming from all of the self-help initiatives we've been talking about. With our technology leadership, we continue to be strong positions of record. We continue to win, and which improves our product mix. We're executing on structural changes on how we operate, including network optimization, yield improvement, productivity and supply chain management.

Third is the disciplined capital allocation. Stronger cash generation allows us to strengthen the balance sheet, fund our highest return strategic opportunities, both organically and inorganically, and return more of this capital to our shareholders. These are not separate objectives. I'll show you why we have confidence in this model, starting with the progress we have already made.

So just looking -- let me anchor you with the framework and the meaningful progress we've made so far. At the midpoint of our fourth quarter guidance, we expect to deliver sales of roughly $3.7 billion this year, representing 17% growth year-over-year. At the same time, we're translating this higher growth into substantially higher profitability and earnings.

Gross margin is expected to improve by 370 basis points to about 48.3%. About half of this improvement is because of all the self-help initiatives that we have embarked, and there's more to come. Adjusted operating margin is going to improve by 450 basis points year-over-year, and our earnings per share is going to grow 60% almost.

This is early evidence of the earnings leverage we expect in the model, and we are also becoming more capital efficient. Capital expenditures this year will be about $200 million, or about 6% of sales, and we expect to exit this year at about 2.7x net leverage, roughly a full turn below where we started in the beginning of this year.

So just stepping back, this combination of results really matters, strong growth, significant margin expansion, faster earnings growth, improved capital efficiency, deleveraging, all are occurring at the same time. We have more work ahead, but we are entering 2027 with a very strong position with increasing confidence in our ability to deliver on our commitments.

So let me talk about future revenue growth first. Over the next 3 to 5 years, we are targeting approximately 15% annual revenue growth, taking revenue from over $3.2 billion to approximately $6 billion. This represents a nearly doubling of our revenue base organically. There are 3 core reasons for this. First, the foundation is our attractive end market exposure. We're increasingly concentrated in the fastest-growing parts of the semiconductor market.

Second is the complexity expands our opportunity faster than wafer starts. You heard this from Olivier, you heard this from Clint. As an example, in advanced logic, moving from FinFET to gate-all-around increases our content per wafer by more than 50%. 3D NAND going from 300 layers to 500 layers increases our content by nearly 90%. Third is our execution, which provides a final multiplier for growth above our SAM. That is what takes us from a SAM growth of 10% to our own revenue growth of 15% over this period of time.

We expect this growth to be broad-based and resilient through the cycle. We participate when fabs are built, when equipment is installed and even more when volume -- wafer volumes ramp in manufacturing. We do not rely on any one architecture, any one customer or one phase of the semiconductor cycle.

Okay. So what does it really mean from a profitability standpoint? This revenue growth, combined with our disciplined execution will fundamentally change the earnings power of the company. Our long-term target -- long-term model targets a gross margin of 55%, up from 48.3% this year. The remaining bridge from 48.3% to 55% is 670 basis points. What really excites us is that about 1/3 of this is because of volume and 2/3 is all the structural self-help work that we are doing.

The volume component is pretty straightforward. Over the past 5 years, we have made significant investment in our capacity -- manufacturing network, and this capacity is already in place. This gives us the opportunity to drive greater asset utilization and fixed cost absorption as revenue grows. But the larger opportunity really is structural self-help improvement, and there are several here.

First is the end market mix. Our portfolio is shifting even more towards innovative, advanced manufacturing and thereby higher-value solutions. A greater portion of our revenues will be coming from areas where our technology differentiation matters the most.

Second, we are turning proven technology leadership into profitability. The positions of record that Olivier and Clint talked about in both MS and APS divisions are results of years of technology investment. These innovations achieve better, broader customer adoption and scale, and we expect the differentiation to increasingly translate into better economics for us.

Third is manufacturing productivity and yield. We maintain a very active funnel of productivity cost down initiatives focused on yield improvement, scrap reduction, labor efficiency. This funnel includes hundreds of projects spanning our 35 different sites, exceed $75 million in productivity over the next 12 to 24 months.

I'll give a couple of examples here. Through a process redesign and proper shift management, we have been able to increase the yield on one of our key product lines by 3x in a matter of months. In another example, we were able to introduce lean manufacturing methodologies that remove bottlenecks in our filter plating process that subsequently improved overall equipment utilization by 20 points. These are just 2 of the hundreds of programs that we have right now for improvement in margins.

So putting all of this together, we have multiple paths to margin expansion. Volume improves absorption, mix increases the value of what we sell and execution improves cost and productivity. Now 55% gross margin reflects a structurally better portfolio, and we're building a business capable of sustaining a higher level of profitability across the semiconductor cycle. This is what gives us confidence in the strong earnings model while continuing to invest in innovation required for future growth.

But we also intend to extend our technology leadership by investing more in innovation while simultaneously expanding margins. We can do both by driving greater returns on our innovation investments and creating operating leverage across SG&A. We intend to build R&D to approximately 10% of sales. Against our revenue growth model, this implies a doubling of our annual R&D investment by -- and more than $2 billion of cumulative investment to the end of this decade.

We're also changing where these dollars are invested. Today, approximately 50% of our R&D spend is directed to SAM expansion and new technology horizons. Over time, we intend to increase that allocation by 15 percentage points. At the same time, we expect to scale SG&A more efficiently. Simplification, standardization, stronger enterprise processes will lead to SG&A growing slower than revenue. These actions create significant operating leverage.

From 2026 -- from the 2026 outlook to our long-term model, total operating expenses declined from approximately 22.5% of sales to approximately 20% of sales, even as we substantially increase our investment in R&D. Combined with this gross margin expansion, our model translates into more than 40% flow-through as we scale, supporting an adjusted operating margin target of 35%.

We do not see a trade-off between investing for growth and expanding profitability. We're creating the capacity to do both. This is the earnings algorithm that's embedded in our model. Double-digit organic growth, significant gross margin expansion and operating expense leverage combined to drive adjusted EPS growth at 30% CAGR or roughly twice the rate of revenue.

So what does this mean? The next step is to actually drive this earnings power into accelerating free cash flow. Over the last several years, we have invested heavily in our manufacturing network, building the capacity required to support our future growth. Since 2020, we have invested nearly $1.9 billion in CapEx.

These investments are strategically important, but constrained our cash flow. This dynamic is now changing. Much of this capacity is now in place, and our first priority is to drive greater asset utilization and productivity from our installed base. In fact, we believe our current network supports a meaningfully more than $1 billion of incremental revenue from here. As a result, we expect our capital expenses in the future to range between 7% to 9% of sales.

Working capital is the second lever. We're targeting an improvement in our cash conversion cycle from approximately 150 days to 120 days, supporting higher revenue with less cash tied up in the operating cycle. The third lever is margin expansion. As we deliver higher gross margins and operating margins, the underlying earnings power of the business should translate directly into operating cash flow.

The result is that we expect free cash flow to grow faster than revenue, fundamentally changing our financial flexibility. This enhances our capital available to further reduce leverage, invest strategically in technology and increase shareholder returns.

Well, our first near-term use of growing cash balances is to continue to strengthen our balance sheet. We ended 2025 with approximately $3.4 billion in net debt and net leverage of 3.8x. We are on track to exit 2026 with approximately $2.9 billion in net debt and net leverage of about 2.7x. Our long-term target is net leverage of approximately 2x through cycle. We have made significant progress in a relatively short period, and we are on a clear path to get to our target.

This matters for 3 reasons. First, it improves our financial strength. Second, it lowers our interest expense. And third, it expands our capital allocation flexibility. So as leverage declines, more capital becomes available to invest in growth and returns to shareholders. We believe deleveraging is, therefore, not only a balance sheet statistic, it is a bridge to greater strategic flexibility in how we deploy our growing cash flow. As leverage approaches our long-term target of 2x, our priorities will evolve, but our renewed discipline will remain.

So what next? As leverage moves towards our long-term model, our capital allocation framework becomes more balanced. Three points here. First, we will continue to invest in our business. We'll continue to fund organic growth and CapEx investments that extend our technology leadership and generate attractive returns.

Second, we will pursue value-creating M&A. The bar is high. Any transaction must strengthen the core, expand our technology positions or accelerate innovation. The acquisition of Advanced Abrasives that Olivier just talked about and which we closed last week is one such example. M&A must compete for capital against organic investment and shareholder returns.

Third, we expect shareholders to participate more directly in the value we create. Over the long term, we expect to return approximately 50% of our excess cash to shareholders through share repurchases and dividends. Now to reinforce this commitment, today, we are announcing that our Board has authorized a $500 million share repurchase program, and we also intend to increase our quarterly dividend by 10% beginning in the first quarter of 2027.

So overall, our capital allocation framework is balanced, but the governing principle is consistent. Every dollar of capital must compete for the opportunity to create the strongest returns. So let me close by bringing it all together, what you heard today and what it means financially for our company. Our technology solutions, portfolio breadth and customer positions give us the opportunity to capture more of the growth. Our job now is to drive disciplined execution to convert the market growth into financial performance and long-term shareholder value.

So over the next 3 to 5 years, there are 4 financial commitments to remember. We are targeting approximately 15% revenue growth CAGR. We're targeting gross margin of approximately 55%, operating margin of approximately 35%, and we expect to -- our adjusted EPS to grow approximately 30% annually.

Put another way, we expect to nearly double the size of the company organically. And we expect free cash flow to grow faster than revenue as margins expand, working capital improves and capital intensity moderates from historic highs. This opportunity is differentiated. We have a clear operating plan and a financial model designed to translate this into results.

Thank you all for showing up here today and your interest in Entegris. With that, I will pass this on back to Jeff to moderate the Q&A.

Great. Thank you, Sukhi. So that concludes the formal presentation. We're just going to get the chairs set up here momentarily, and we'll invite the 4 presenters today up on the stage. [Operator Instructions] With that, I invite you to the floor, please come up. [Operator Instructions] So Melissa, maybe you could start with us. Please just state your name and your firm.

This is Melissa Weathers from Deutsche Bank. I guess I'll spare you a gross margin question for now. But in the context of the cycle, Dave, you kind of talked about it in your prepared remarks. As we look at the fab build-outs happening over the next couple of years and compare it to your long-term model, the CAGRs that you're giving, can you help us understand kind of the shape of the cycle you're expecting? Any kind of difference in MS versus CapEx? Just a little more color on how that cycle will shake out.

Shape of the cycle. This is always one that you want to avoid actually because inevitably, anyone that's been around semi for 30 years, which is how long I've been around semi, you rarely are able to call the cycle correctly. But let me give you the best data that we have collectively as a team.

I think it's pretty clear that there is a supply and demand mismatch in the industry. And that supply-demand mismatch is in advanced memory, it's in advanced logic, and it's also in advanced packaging. And I think that is pretty clear. And I think that's near term and it's upon us, and the industry is working incredibly hard to resolve that supply and demand mismatch.

So I think what that translates into is I do think the CapEx build-out continues from here. I think that progresses through 2027. Our best visibility is it will progress through '28 as well. And then eventually, that CapEx spend will turn into units, probably towards the out years of the long-term horizon that we presented. So near term, I think supply-demand mismatch will drive that CapEx. I think that CapEx cycle looks still pretty strong and still, if not early innings, at least mid-innings. And then we think that turns into units.

Great. And then I don't know if this would be for Olivier or for Dave, but on the advanced packaging investments that you've done, Entegris has always been known as kind of a front-end focused, shrink-focused company. And so it's been interesting to see you guys invest more on the advanced packaging side. So any more color on the rationale why you want to get into this business? How big do you think this could be as a percent of your portfolio?

So maybe I'll start, and Olivier, you can build on the comments. I mentioned a couple of times over the last 15 months. It feels longer than that since I've been in this seat. But I mentioned a couple of times about the incredible opportunity in the advanced packaging market, again, not in the bulk commoditized market, which a portion of this industry will become, but in the portions of the market that create the most value.

Five years ago, advanced packaging, the annual spend on CapEx was only about $1 billion, maybe $2 billion. This year and next year, it's probably going to be about $20 billion annually. It's incredible how that market has grown because of complexity. So what we used to think of as back end of line has actually become much more similar to front end of line. And so what you're seeing us do strategically at a high level is you're seeing us focus on the areas that we think are the most differentiated where we can create the most value. Olivier?

Let me build on that. And in particular, I'll take 2 examples. One is on the challenges of the industry to basically bond or adhere chip on wafer, or ultimately wafer on wafer and for sure, chip on chip, 3D-IC. So if you think about every single device architecture, we are going 3D. With that comes metallization schemes, connectivity.

But probably the biggest challenge that the industry is facing right now is around how to ensure that the surfaces are actually planarized, cleaned, passivated and ready for the next chip or the next wafer to be attached to. This is an incredibly complex challenge for the industry at scale to do. And this is where hybrid bonding will come into play.

So Entegris strategically has done a lot of work in the last couple of years, sometimes in a quiet manner so that we are ready to basically attack this market, and we intend to be the leader in hybrid bonding CMP, number one.

Number two is the biggest challenge of every single data center is power and thermal management. I'm sure you're all very familiar with it. We're not saying we're going to be the only one solving it, but we absolutely want to be at the intersection of the material science innovation that enable these solutions to be lower power. It starts with SiC. It continues diamond, and you'll see more coming in the future, which we can't talk about immediately.

Entegris intends to be the leader in thermal interface materials for the many years to come. Now taken together, both of them are very large SAMs. Hybrid bonding alone will definitely be multi-hundred million, if not more for CMP application.

TIM materials -- well, the TIM market is already $4 billion today. But these are traditional materials, not the leading edge and not the most advanced, not the most complex. Where we want to participate is really the most differentiated side that offers the best opportunity for us to intersect. So both of them will be very sizable SAM, and we intend to be leaders there.

It's Tim Arcuri at UBS. So Dave, I want to ask you about China. So I think China was 20% of revenue last year. And a lot of people worry about your -- not your competitive position, but just China generally eating into your business. And so I wonder, is MS more exposed to that? Or is APS more exposed to that? And what's being assumed for China in this model?

Right. So China is probably going to be closer to 18% of our revenue this year. It will be less than 20% less than last year, not because we don't expect China to grow. We actually expect China to grow this year, even though we're lapping at least in the first half, the impacts of Liberation Day. But we expect China to grow this year. It's just that we expect the rest of the world to grow faster.

So if you take a step back and you look at rest of world versus China, the first thing that you notice is the rest of the world is growing incredibly rapidly on the back of advanced manufacturing. That's memory and that's logic. And China is still mostly a mainstream logic market. Now they are growing in memory, but they are not yet growing because of EUV capability and tools, et cetera, yet in advanced logic. And so because of just the market trends, we expect the rest of the world to outgrow China because they're still primarily a mainstream logic market.

We expect to grow in China this year. I would expect us to grow in China actually over this long-term horizon, but it will be at a much, much slower rate, not because of particular China's -- not because of particular challenges for our product lines in China, but because it's mostly a mainstream market. We are selling into the most advanced manufacturers in China. So when you think about memory, we have positions of record in memory in China.

When you think about mainstream logic and their most advanced logic, we have plans of record in their most advanced logic. We sell more than 1,000 products into China. So this is not a market that's particularly narrow and small, and we're easily displaced with very few SKUs that are of very high value. We sell a broad lineup of products and portfolio into China.

So near term, Tim, I think what you can expect, you can expect China to grow in absolute terms on a percentage basis, probably less than the rest of the world. I think you can expect to see more CapEx being sold in China over the near term. Again, they're building some fabs as well, particularly on the memory side. And then I think over time, you'll see us continue to participate in units the same way that we do today. The business in China is pretty well balanced over the next couple of years.

This is Elizabeth Tan from Citi. Just curious on this 5% outperformance, if you could help us break it down like how much is from content growth, how much is from share gains with your existing products? And how much is from like new markets such as advanced packaging? And if I could follow up to that, what drives to the upside to the 5% outperformance?

I'm sorry, what was the last question?

What drives to the upside to the 5% outperformance?

Okay. Let me take it at a high level, and then I'll turn it over to Clint and Olivier to maybe talk specifically about product lines and business units. Look, at a high level, we think the case for about 10% SAM CAGR is pretty straightforward.

And so when we think about that business case, remember, 70% of our revenue driven by units, advanced logic, MSI growing, let's call it, 10-ish percent, slightly more than 10% memory growing, let's call them, high single digits, and mainstream growth being very muted, primarily because it can't actually get all the memory that needs for those markets. And then 30% of our revenue coming from CapEx. So I think there's a good case for 10% CAGR for our SAM.

When you look at our outperformance, which was the nature of the question, the incremental 500 bps, it's really the chart that I showed you that had -- the one page I showed you that had 2 charts. The first chart on the left was materials intensity and value consumption has increased more than 10x over the last 25 years and contamination control requirements has increased 1,000x. And both of those together are driving incremental content as you think about most advanced memory and the most advanced logic, and that's what's creating the opportunity for us.

Just more volume from AI is great. We'll take it. But what's driving the incremental outperformance is really the materials consumption and the value with technology inflections and the control and contamination requirements on the purity side with those SAM inflections. Olivier, Clint?

I mean I'll give you just a simple rule of thumb. On the MS side, the bridge between 6%, 7% MSI to 10% SAM expansion to 15% or close to 15% revenue growth, I call it 1/3, 1/3, 1/3. 1/3 of that bridge comes from the number of layers and the opportunity that Dave just described that I think I showed you across every one of the device inflection.

1/3 comes from plan of record and share gain within the SAM that we participate, and 1/3 will come from SAM expansion, including some of the -- not just advanced packaging, by the way, but also some of the new opportunities, cryogenic etch, novel implant, new deposition and application we will participate into. That's probably a good way to think about that split.

And I would just expand from my side, from a customer standpoint, we're engaging, solving some of the most challenging problems where we're actually enabling ourselves to expand our SAM. I gave some examples of purification. I talked a lot about metal and ionic purification. We're actually developing solutions that don't exist into the market. So we're growing our SAM.

Second example that I'll give is unique to our competitors, we're able to partner with our customers in region on solutions around the world. We have a global network of technology centers where we're working hand-in-hand with our customers. So that customer interaction is another way.

And then the third thing is as the demand overall in the industry is rising, I think Entegris is uniquely positioned to be able to satisfy that demand from a manufacturing network. So I really see growth above the market coming from technology, customer as well as the manufacturing expansion.

And to the second part of your question, potential upside, if you just break down MSI today, 55% of MSI, again, this is total wafers that are produced in the market. 55% of that is mainstream logic, 45% of that is split, with the bulk of it in memory and then a smaller portion in advanced logic. If that part of the market, advanced logic and advanced memory, can add capacity even faster than we expect, those are the areas where we're most levered and that will drive incremental outperformance for us.

Chris Parkinson, Wolfe Research. I'll do my best not to be too leading, but you've been here for about 15 months. When you came in, what were the 2 businesses you were the most enthusiastic to run? I know it's a hard question. What were the 2 where you approached that perhaps saying, hey, I'm going to have a lot of work to do over the next year or 2 to catch up or I'm going to have competition in China? And has that response changed into this event a year later?

The 2 I was most excited about or the 2 I thought needed the most help?

Both.

Now you've expanded the question. I love all my children equally. Look, I think when you look at the core assets of the company and where we have like real competitive advantage that's tangible, we have a great position in CMP, starting kind of with slurries increasingly in pads and then migrating into cleans, and then potentially pushing all of that into a market like advanced packaging.

We're incredibly excited about that portion of the market, excited about some of the plans that Olivier has launched and enacted. And so that's a portion of the market that we think as you add more layers and process steps, as you add more packaging, you need more planarization. And so having a very strong position there as a starting point, and then being able to capture the opportunity in front of us, we're excited about that position.

On a similar basis, on the filtration and the purification side, Clint talked about filtration and our position on filtration. Filtration started as a physical separation, right? The pore size is this big, the particle is this big, it won't pass through, right? Well, now all of a sudden, we're trying to capture ions and organic contaminants. And that's not done through a physical process. It's done through a chemical process. That's the purification part.

So filtration, traditional filtration with the filter media and then you treat that media with chemistry -- I can use some of my chemical engineering background. By the way, everyone on the stage is an engineer. I'm just going to say that as an aside. Everyone on this stage is an engineer, and everything that we deploy in the company, kind of first principle scientific method.

But back to filtration and purification. So you're taking a traditional filter, you're treating it with chemistry. And now you're moving out of the realm of what used to just be physical and you're adding chemical, and that creates incremental opportunities, and it creates a big gap in a divide between us and competition. So I think the 2 things, 2 assets, 2 product lines, 2 technologies, let's call them, the planarization technologies or CMP and the filtration and purification technologies that are increasingly intertwined, we're incredibly excited about those.

Other businesses that we have positions in, but we think we can kind of land, expand and do more, deposition in Olivier's business, I think is an area that as you think new materials and technology inflections is an area where we want to be much more relevant. We're relevant today, but we're small. And I think we want to expand that to be even more relevant where we are.

And then I think when you -- micro environments and some of the advanced packaging. So when you think about all of a sudden, instead of just moving wafers, you have to move a panel. And so it's a co-packaged chip and it's vertically integrated, and we've added some of the TIMs material and CoWoS and EMIB on top with hybrid bonding, imagine the value that's being carried that has to be protected.

So I think in terms of opportunities, core positions incredibly exciting carrying us forward, filtration purification with CMP. And then I think kind of becoming bigger in the future, some of the advanced packaging microenvironments and some of the deposition from MS.

So one additional point that I want to make is -- so Dave talked about filtration purification and CMP or some of the MS solutions. And we talked about those as powerful individual franchises. But what's really exciting is when they come together. And when we can come up with -- when I can learn how to develop a better filter and purifier by leveraging the knowledge from Olivier's team. When Olivier can introduce a new CMP slurry or a new chemistry, and we compare it with a filter or purifier. Now you also -- and then when you combine that with this transition from mechanical base filtration to a chemical kind of purification solution, you'll have a system where you have a chemical coming in chemical A, a purifier. And then what comes out is not just cleaner A, but rather it's a different product. It's chemical B. And that's really important. And that is something that no one else in the industry can do besides Entegris. And we are, in my opinion, still in the early stages developing those styles of solutions. And that's yet another way where we're going to be able to expand faster than our competitors.

And I'll add one thing. On the deposition side, I think the business model is really evolving as well. So the old way of the low-k wave 20 years ago with one very successful company, then the high k-wave 10 years ago with another successful companies. The way the leading companies in the world and leading OEMs are now inventing is totally different. It's changing. So the -- I think I mentioned that during the presentation, but they now expect you to come up with a predefined model, innovation model, together with the new chemistry. I think we see that as a great opportunity for Entegris to leverage on its technology centers in Taiwan and Korea and the U.S. And in Japan that we just announced last week to innovate completely differently and actually bring solutions for the next inflections on the deposition side that will really disrupt the market. So while we are a little bit small on the position, this will be a key differentiation for us as well as being the only competitor in the industry that can do deposition and etch or deposition in CMP. Most of our competitors can do deposition for 2 big players or can do CMP for 1 big player or can do etch for 2 or 3 in Japan. None of them can synchronize these two. If you bring these 2 fundamentals together, novel way of inventing your thin film deposition materials for the future and new ways of synchronizing the data packages between depth and etch or depth and CMP, you'll see a very different Entegris in these domains in the years to come.

Brian Chin. And then maybe we'll go back to Pete in the back.

Brian Chin from Stifel. I appreciate the presentation, very informative, very helpful. Maybe a two-part question for me as well. I think there was a slide that showed R&D at some point, at one point, it was like 50-50 defending versus like offense versus defense, something like that. And so I guess that shift from 50% to 35%, which just you're overspending on what it takes to defend that but you're walking away from business per se, right? But now you can just reallocate that in a more favorable way, that's one clarification. I guess -- and then I'll ask kind of the gross margin question, too. When you show the crosswalk from high 40% to 55% over time, where would the new product introduction start to kick in, in terms of that sort of linearity over time going from now to 4 to 5 years from now, which I think is roughly what the implied CAGR suggests. And also, I know it's -- the lion's share there is kind of structural improvements. But in terms of pricing, where would that also factor in the model?

Maybe I'll start, Sukhi, and you can build that. May be 3 questions actually, but we'll try to hit them all. If I miss one, let us know. And look, on the -- from an R&D perspective, we have a lead today, and we want to extend and keep our lead from a technology perspective. But to do that, we have to change. And so if we really want to extend our leadership position and we start to want to more aggressively target some of the SAM expansion areas, then we have to become more efficient in our existing SAMs. And I think we have a number of methods to do that. I'm not going to kind of go too deeply into some of those methods, but we're already starting to see progress in utilizing those methods and deploying those methods. And we're already seeing faster innovation cycles. So what used to take us, as Olivier gave an example, 3 years to do, we're able to do it in 12 months. What used to be a quick spend for a product that would maybe take 3 to 6 months is now taking 1 to 2 months. And so we believe that some of the methods that we're deploying are working, and we believe that we can get to that best-in-class model over time, over the time horizon that we showed you.

With respect to new products, so new products as we introduce them, they're already being introduced at a higher value. So as new products are being introduced, they're already capturing the value that those new products are delivering. And by and large, that's accretive to where our current enterprise margin sits today. So we already feel good about the innovation cycle, the value that we're delivering and our ability to be able to capture that.

Sukhi, do you want to maybe make some comments on the gross margin?

Yes. Look, I mean, we are -- there's multiple paths to this gross margin, right? So there's productivity, yield. We didn't talk much about pricing. But in Q3 and Q4, there has been no pricing impact. And to Dave's point here, all new products will command better value for us. So as we move forward into next year, it's going to be another lever for gross margin expenses. So there's multiple levers that we're focused on. That's why we feel like our gross margin target of 55% is the right one for us moving forward.

Pete, could you raise your hand? Raise your hand again. Pete, could you raise your hand and go to mic, and then we'll go over here to Saurabh.

Pete Osterland, Truist Securities. I just wanted to ask on capital allocation. Just as your leverage continues to decline, what areas of the portfolio overall, do you see the best opportunities to accelerate growth through bolt-on M&A?

Well, let me start and then maybe I'll pitch it to the team here, and so you can hear -- you hear from me a lot, and I think this is a unique opportunity for this community to hear more from the staff who is critical to delivering long term. I'm just happy that we can sit here today and talk about capital allocation because a year ago, we couldn't, right? A year ago, we were at 3.8x leverage, and the only thing that we could talk about was how do we continue to pay down debt and perhaps pay it down faster?

Well, let me just talk briefly about what we've been able to do. Free cash flow this year, Sukhi, keep me honest on the numbers, I think free cash flow this year up. Year-to-date free cash flow, I think it's up like 85% year-over-year, 85% in 15 months. That's what we've been able to do through some of the self-help that we've showed you in these slides. Our net leverage has gone from 3.8x to 2.9x and probably down to 2.7x. By the end of the year, we've retired $450 million of term loan. And we still have another quarter to go and a quarter of kind of record -- some records potentially for fourth quarter again.

So I'm very -- I'm glad to get this question. I think it's a great question, and I'm glad that we can get it because 12 months ago, we actually couldn't talk about this other than just paying down debt.

Team, anything you want to talk about without expanding too deeply? Any areas, technologies that are interesting?

Look, think about the opportunities are not sort being the big large platform type of M&A, but it's more the targeted bolt-on. I think what Entegris has been known as well is to build a portfolio of solution over time. So anywhere on the heat map where you see a number, 3, 4, 5 position, but not the #1 or #2, it's an area for us to consider reinforcing the core. Anywhere where you see an inflection on any one of the 4 device type road maps is an opportunity for us to ask ourselves, should we build? Should we partner? Should we buy? Anywhere where you see chemistry fitter is an opportunity to combine that with the data set.

So I would just guide by saying, you have 3 road maps of M&A that you can imagine for us, one to reinforce the core, one to expand in the inflections and one to further enrich our product with data.

We're running long in time. So we'll take 2 more. We'll go here and then Ed will go finish that.

This is Saurabh from Mizuho. So you had 2 POR wins on moly in last 12 months. Can you give us a sense of where are we in the adoption curve for moly? And like help us understand how many of the big NAND makers are currently utilizing moly in high volume manufacturing? And when do you see moly to be used in advanced logic and DRAM going forward?

Olivier, maybe I'll start high level and then I'll pitch it over to you for some of the details. Look, I think we've actually seen pretty good transition this year, maybe a little bit faster than we originally expected, moving up to about that 300 layer count. Every NAND provider has slightly different technology, as you know. But once you get around 300 layers, that's when you start to really introduce molybdenum. And so as the pricing for memory and NAND has gotten higher and the capacity has not really been expanding because there's been no real new investments that have come online. What you've seen is you've seen the memory makers want to move to more density and moving to more bit density is driving higher layer count, and that's what's driving molybdenum to be kind of 2x growth for us this year versus last year.

Olivier, you want to talk a little bit about where we are in the curve of moly adoption and maybe the remainder of his question?

Sure. I mean just to reinforce the point, the NAND market is nowadays driven on one side by the storage requirements for data centers, but also by the KV-cache applications that are very, very critical for the AI inference. So for them to really play in that KV-cache cash that requires you to increase the bit density at a pace of innovation that was probably -- that is probably faster than before, if you look in the historical basis. So NAND first, for sure. I would say 2 of the 4 and so in 4 of the 4 big players will adopt moly over the next 2 years. Probably DRAM second or the jury is out, and we'll leave it to the DRAM makers to decide which integration schemes. Some of them are staying on 6-Square with CMOS-bonded-array, CBA. Others are transitioning to 4-Square, and others are trying to jump to 3DDRAM, although it may take a little bit more time. So depending on the scheme they choose, you'll have very different integration schemes and different time lines for moly adoption.

But it's also the logic side. So logic, on the advanced side, we'll likely see moly being adopted at least at the linear level of the lower metal level. Whether they will adopt moly at the fill of these tranches and bias at these lower metal levels, again, that will be up to the customers to decide.

But in either one of these 3 cases, whether it's for NAND, whether it's for DRAM and HBM, whether it's for logic, I think we will be ready. The difference is for us is less on the supply of the moly precursor, but more on the corresponding edge of CMP solution that we bring with it. Again, we would be probably unique in the industry in being able to market not only the deposition side against 1 or 2 other big platforms, but bringing a ready moly etch solution for NAND already moly CMP solution for logic in the future.

Ed, we'll go to you, and then we'll have one more in the back.

Ed Yang Oppenheimer, and thanks for squeezing me in, and this is a very helpful Analyst Day. I appreciate it. I just want to get a little bit more granular on your assumptions for Materials Solutions growth, the long-term growth algorithm, 6% to 7% MSI growth, 13% to 15% Material Solutions growth. So 7% to 8% outperformance for Entegris. In your 2024 Analyst Day, you were looking for 4% to 6% outperformance. So you've increased the outperformance. It seems like some of the structural drivers are -- have remained unchanged, content growth, et cetera. So just want to get a better sense of what informs your view of that acceleration of outperformance? And how much of this outperformance is supported by your current POR pipeline and your win rates there?

Let me start at a high level, and then Olivier I'll kick it over to you. I think, one, when you compare us to the past, I think it's somewhat similar, although we certainly expect better execution on a go-forward basis. And when you go back to that -- the chart that I showed about the total Entegris SAM expansion and you focus on the unit portion, so the unit portion is where the vast majority of the MS division in place. So about 95-ish percent of their revenue is driven by units. And if you remember, when we disaggregated that MSI, it was advanced logic growing about 11%, memory growing about 7% and mainstream logic growing about 3%. I think if you go back in time, I think it was unclear how quickly advanced logic and memory capacity investments would be made. And I think what you're seeing now is with the supply and demand mismatch we see in the industry, you're seeing a lot more investment on advanced logic and on advanced memory than what was in the prior iteration in the past. And so I think that would explain some of that outperformance.

Olivier, anything else that you build upon there?

Yes, the only other point I would add, one is definitely, we see the memory market becoming a specialty differentiated market, which looks totally different than 3 years ago. I'll have to explain that to you. But think back about Analyst Day, February 2024, it was on the back of 2023 memory market. At that time, HBM was barely taking off, look at what it's become today. So the number of architecture changes in DRAM in high-bandwidth memory is just totally different. So the market has turned to the better because every device inflection, acceleration brings more materials opportunity.

The other one is the customers need Entegris way more than in the prior years. Think about the numbers we showed you earlier with Clint and I. And for material side, 350 engagement. At that time, we had 150. So we've gone from 150 engagement qualifications to 350. I can tell you today that if we had the means to do it, the customers would give us 500 to 600 opportunities. So the customer need Entegris more than ever. I think that gives us the confidence, not only memory market acceleration for sure advanced logic as well but also the number of engagements rising very significantly.

I'll just add one point. I know you asked about MS, but from an APS side, Olivier's point about the value -- what's changed in the memory market. Think about 3 years ago, the value of improving yield for a memory manufacturer, think about that today. Every chip that a memory manufacturer produces today flows to the bottom line at a level that's quite directly unprecedented. It's actually driving more engagement from my side of the business with the memory markets, whereas historically, it's been more -- a lot of our focus has been on the logic side.

We'll take one more question in the back over there. And while we're setting -- while we're getting the mic there, I remind you that afterwards, we'd love to see you in the product showcase as well. You'll get to speak to some of the leaders from across our business. We're really happy to have everybody here. And with that, we'll take our last question from the back.

Aleksey Yefremov, Barclays. I just wanted to clarify your -- first, in the past, Entegris used to provide 3-year targets. This time you decided to provide 3 to 5 year. So could you expand on why? And then just to clarify, is your $6 billion sales target your commitment over the next 3 years or over the next 3 to 5 years?

Yes. The way we really thought about the long term -- and everyone has a slightly different definition of long term, and everyone has a slightly different mental model with respect to how a semiconductor cycle looks. And so what we tried to do was be kind of less specific on the year just so that we could just essentially give you numbers that we feel like we can deliver on over a long period both something we should expect over a somewhat shorter period at 3 years as well as extending out to a longer period as well, depending on what the market does. And so that's why we chose that time period. I think when you look at the near-term noise in the market and maybe this is a good point to kind of wrap up, just think about the market sentiment 3 weeks ago, versus today. Our demand hasn't changed. It hasn't changed from where we sat 3 weeks ago, to where we sit today. In fact, I think we've gotten even more orders at this point in time in the quarter than we had last quarter. So if anything, our demand from customers has actually improved. And so we are optimist as a management team, we think when you look back at the prior eras, whether it was Internet, whether it was mobile, whether it was cloud or whether you're sitting here today in IAI, we think every single era of technology delivery in semiconductor has improved life as we know it, and our standard of living. You think about the number of semiconductor that you touch on a daily basis. You wake up in the morning, you touch your phone, you look at your watch, maybe use your coffee pot, perhaps you use your dishwasher, your microwave, you get into your car, you have LED lights on the street, semiconductors make our life the way it is today. In fact, they are the magic of our life today. And so we think the long-term trends for semi are fantastic. We don't know exactly the rate and pace of how many data centers are going to roll out in 2027 or 2028, but we think the long-term trend is fantastic. We think we are incredibly positioned to capture those long-term trends and opportunities. And quite frankly, we couldn't be more excited to sit here today as a management team and tell you about how we're going to capture those opportunities and more specifically, how we're going to take that potential energy and that potential opportunity and turn that into results that you all can measure.

So thank you so much for your time today. We really appreciate your interest in Entegris. And please, if you have time to meet some of the management team, ask us more questions and we're happy to engage. Thank you.

Welcome to the Entegris Third Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Jeffrey Schnell, VP of Investor Relations.

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%. I 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 road maps and seeing a clear progression from codevelopment 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 have 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're 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. And that is only 1 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 the strengthening and have been working for several quarters to unlock the significant embedded capacity across our manufacturing network by adding head count, 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 record with a major smartphone and technology provider. And 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 1, 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 and 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 the stronger cash generation and faster deleveraging. 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 2 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 positions 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. And before I close, I want to remind you that we will be hosting our Capital Markets Day on November 9, 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 what we believe Entegris is uniquely positioned to capitalize on the next phase of semiconductor growth, our AI native strategy and our road map 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. This gross margin improvement also offset a 30% year-over-year increase in direct factory head count as well as higher performance-based compensation and other investments to support customer demand.

Operating expenses on a GAAP basis were approximately $270 million and approximately $223 million on a non-GAAP basis or 22.1% of sales. The year-over-year increase primarily reflects higher performance-based compensation associated with our stronger results.

Adjusted EBITDA was $303 million or 30.2% of sales compared with 27.3% a year ago and 28.4% in the second quarter. That represents approximately 290 basis points of year-over-year margin expansion. The GAAP tax rate in Q3 was 15%, and the non-GAAP tax rate was 16%. GAAP diluted EPS was $1.03 per share and non-GAAP EPS was $1.23 per share, an increase of 71% year-over-year. The combination of approximately 25% revenue growth, 530 basis points of adjusted gross margin expansion and 71% growth in non-GAAP EPS demonstrates the earnings leverage we are generating as improved execution translates higher volumes into stronger profitability.

Now switching to our segments. Materials Solutions delivered third quarter sales of $404 million, up 16% year-over-year and 9% sequentially. Growth accelerated meaningfully from the second quarter, and the segment delivered its highest quarterly revenue since the third quarter of 2023. This growth was broad-based and for all major product categories and regions, reflecting stronger production volumes at advanced nodes and increasing demand for our materials used to manufacture at the leading edge. The strength was evident across CMP consumables, advanced deposition materials, specialty gases and coatings.

MS adjusted segment margin was approximately 20.4%. Higher volume and improved productivity drove the margin expansion, offset by continued investments in capacity and resources needed to support customer demand.

APS delivered Q3 sales of $605 million, up 31% year-over-year and 18% sequentially, reaching a new quarterly record. Growth was broad across most products and geographies, reflecting the dual exposure of the APS portfolio. Higher production, advanced node transitions and the incremental contamination control requirements increased demand for our filtration and purification products, while accelerating capital investments primarily centered around leading-edge capacity drove demand for our micro environments, fluid management and CapEx-related products.

Adjusted operating margin for our APS segment was 34.4% for the quarter expanding both year-over-year and sequentially. The improvement was driven by higher production volumes, driving operating leverage, along with productivity improvements and favorable mix. These benefits more than offset higher performance-based compensation and the additional resources we are adding to support customer demand.

Switching next to cash flow and balance sheet. We delivered record operating cash flow and record free cash flow of $224 million in the third quarter or 22.2% of sales. This reflects higher earnings, lower capital spending and continued working capital improvements. The strength of our cash flow generation enabled us to fully retire our term loan in Q3 ahead of schedule. As a result, net leverage improved to 2.9x at the end of Q3. We now expect to end the year at approximately 2.7x, reflecting more than a turn of improvement from where we began the year.

The combination of stronger earnings, improved cash generation and debt repayment is increasing our financial flexibility and positioning us to invest in future growth opportunities, while maintaining a disciplined approach to capital allocation.

Moving on to the details of our fourth quarter outlook. We expect Q4 sales to range between $1.025 billion and $1.055 billion. At the midpoint, this represents a year-over-year increase of approximately 26%. The building on the strong performance we delivered in Q3.

Gross margin is expected to be between 49.2% and 49.7% both on a GAAP and non-GAAP basis. At the midpoint, this represents approximately 50 basis points of improvement sequentially and approximately 550 basis points of improvement year-over-year. At the midpoint, we expect GAAP operating expenses of approximately $272 million and non-GAAP operating expenses of approximately $227 million, reflecting higher variable compensation and investments to support the growth we are seeing across our portfolio.

And at the midpoint, we expect Q4 adjusted EBITDA margin to be approximately 31%. The which represents more than 40% growth in adjusted EBITDA year-over-year, significantly outpacing revenue growth and providing further evidence of the operating leverage in our model. Additionally, we expect net interest expense to be approximately $40 million, a non-GAAP tax rate of approximately 15% and depreciation at approximately $34 million.

Based on these assumptions, and approximately 154 million shares, we expect GAAP EPS between $1.09 and $1.17 per share and non-GAAP EPS between $1.32 and $1.40 per share.

Finally, we expect our CapEx to be approximately $200 million for 2026 or about 1/3 lower than last year. Looking ahead to our first quarter revenue expectations, we expect the momentum to continue. Based on our current visibility, fewer days in Q1 versus Q4 and typical industry seasonality and we expect revenue to decline by a mid-single-digit percentage compared to Q4 but an increase of more than 20% year-over-year. Stepping back, the financial progression of the business is clear and increasingly visible in our results. We are translating strong revenue growth into even stronger earnings and cash flow growth while continuing to strengthen our balance sheet.

Our fourth quarter outlook reflects continued operating progress and a strong close to the year that we expect to build on in 2027. We look forward to sharing more with you at our Capital Markets Day on November 9.

With that, operator, let's open the line for questions.

[Operator Instructions] Our first question is coming from Melissa Weathers with Deutsche Bank.

Congrats on the $1 billion mark. It's very exciting. So I guess if we could just unpack the upside in the quarter versus what you had guided to. I just want to understand how much of this was an incremental supply coming on, how much is demand strengthening. Yes, just any other help on the supply side that you can...

Melissa. Look, the revenue beat for the third quarter really just came down to execution. Demand was strong. The team's increased production and throughput really beyond our expectations which allowed us to convert more demand to backlog into revenue. From a strength perspective, we saw strength across the portfolio, particularly in our CapEx-related businesses, as you would expect. Internally, we're continuing to strengthen our ability to serve that demand and that backlog that we see both today as well as in the future.

Our commercial engagements remain very strong. Customers are providing longer planning horizons, longer lead times. We're continuing to win new plans of record across both segments of the business. And we're unlocking the capacity that we talked about essentially this time last year in 2025. We're improving productivity. We're increasing ultimately our output, and we're being a stronger, more responsive, more reliable partner. Sukhi, anything you'd add to that?

Yes, sure. Melissa, in addition to the revenue growth, it really translate into gross margin expansion about 130 basis points sequentially. And that improvement was mainly due to the higher sales volume that Dave just mentioned here, which generated also a meaningful operating leverage for the company. So really, I mean, the strong production output, factory absorption, all of the yield initiatives that we're doing, lower inventories, scrap, rework, all of those things added benefit to the margin. This despite we had higher incentive compensation, labor and overhead investment to support the ramp. So if taken this altogether, I think we're pretty pleased with how we landed on the gross margin for the quarter.

Melissa, did you have a follow-up?

I did. So I guess, I appreciate the help you're giving us on the first quarter of next year. It sounds like that might be -- I don't know if it's a seasonal down or there's a [indiscernible] untap there, but if I could get greedy [indiscernible] Any initial outlook for how you're thinking about 2027, any way that we should be thinking about MSI and CapEx growth [indiscernible].

Sure. Look, for 2027, obviously, we're not going to provide that guidance today, but we think the industry setup is incredibly constructive really across all of our major demand drivers. The demand that we're seeing today gives us increasing confidence that the momentum that we're exiting 2026 with will carry over and extend well into 2027.

On the unit side, industry forecasts are calling for MSI growth to broadly be consistent with what we saw this year. And ultimately, all of that CapEx that we're adding will eventually turn into wafer starts. So I think that bodes very well for MSI, both from '26 migrating into '27 as well as '27 migrating into '28 and beyond.

Next year, on the CapEx side, all of our indications certainly seem to point to another strong double-digit growth year for both WFE as well as for fab construction. So really, based on everything we see today and the momentum that we have in the business, we think it's a good setup for us and the industry exiting 2026 with momentum and carrying us into '27 -- and we'll talk a little bit more about all of at Capital Markets Day.

We'll take our next question from Elizabeth Sun with Citi.

Congrats on the good result and good execution. So I guess my first question is you are looking at -- you had like 25% year-over-year growth in Q3, and you are looking at more than 20% growth in Q4 and Q1 as well. I'm just curious, given your strong backlog, growing backlog, is there any reason for us to think this kind of stress is not going to continue into next year? And also, given your strong backlog, are you seeing any -- are your suppliers ready for that, any like emerging constraints on that so.

Thanks, Elizabeth. Look, we're really, really happy with the momentum in the business. As you mentioned, Q3 plus 25% year-over-year growth at midpoint of guidance, kind of a similar number for fourth quarter and then also a somewhat similar number that we've kind of indicated for first quarter of next year even with kind of seasonally down moving from Q4 to Q1.

So there's just an incredible amount of momentum in the business in the second half of the year. Some of the -- a little bit of that is market-driven the lion's share of that is really our performance. And so we're pleased with the demand environment and I would say even more pleased with the way the team has responded to the initiatives that we put in place in the latter half of 2025. And those initiatives are starting to bear fruit for us here in 2026 and I think bode well for '27.

From a supplier perspective, if I was to broaden that out just a little bit, when you think about this time last year, I said that we had significantly greater than $1 billion of incremental capacity in our network. I chose those words fairly carefully to indicate that we had well over -- to support 2027 demand and even beyond. Obviously, we'll have to spend a little bit to kind of bundle some of those pinch points that you inevitably get, but we feel quite good about our ability to be able to satisfy the demand.

From a supplier perspective, we have really been working with our customers closely to 1 understand their demand, test their demand and then take that internally, compare that to our capacity and then even further take that down into our supply chain to make sure that our supply chain is also ready to be able to support the demand that we see in front of us.

We feel good about that. There will inevitably be some pinch points. We've already proactively identified some, and we've been able to work some of those. There will be more in the future, I'm sure. But I think what we all feel good about is how we've been able to kind of ramp to where we are today, identify the ramp that we need for Q4 and Q1, and now we're working on those additional pinch points. Did you have any follow-up Elizabeth?

Yes. Then for my follow-up, it would be a high-level question. So [ Lam ] recently highlighted that AI is driving demand for different tiers of NAND. You're talking about TLC and most -- especially they are talking about SLC emerging as a new tier for AI storage in the agentic AI area. So I'm just curious for Entegris, obviously, it is good for they did talk about every point of demand shifting towards SoC. It is roughly 2 points more wafer capacity, so that is good on the wafer start side. And but just curious on the content side, how does the -- how does integrate content barriers across this kind of different technologies?

So as you know and as we've long talked about at Entegris, we welcome technology transitions. We are fairly ubiquitous across as a provider or as a supplier to all the memory providers as well as both mainstream and advanced logic for that matter. As the technology becomes more complex, that really gives us the opportunity to outperform with more content, more layers, as you mentioned, more wafer growth in addition to that. So we're excited to see the technology transitions that are being driven by the complexity and the performance that's required to satisfy AI, and we think that, that bodes well for Entegris.

We'll take our next question now from Brian Chin with Stifel.

A few questions, and congratulations on the strong results. Yes, maybe for the first question. There were some third-party reporting on MSI recently that pointed to 2026 growth, possibly being in the low teens this year, which is an acceleration from that kind of prior high single-digit forecast I think you've also cited. Do you feel this provided any tailwind to the unit-driven business segments in the second half? Or to your point, Dave, about the execution and conversion being bigger near-term factors, could this pick up and MSI in the back half of this year actually provide more tailwind to you in the earlier phases of next year?

Yes, we probably subscribed to many of the same MSI third-party reports that you do. We tend to take those reports as content and as context. MSI measures really the wafer shipments and not the actual wafer starts and then shipments out. So there typically is a little bit of a mismatch between shipments and then ultimately, those wafers moving into production. Because of that, we believe that MSI for the year is probably going to be in kind of the mid- to high single digits, call it 7%, 8%, maybe even 9%. But somewhere in that type of ZIP code is kind of our expectations for the year.

We do expect it to be a little bit more weighted to the second half, probably 52% in the second half, 48% in the first half, something to that effect from an annual MSI perspective. So slightly more weighted to the second half. So we are encouraged by the trends in wafer growth. And we did see a slight pickup in mainstream. As you know, advanced logic is pretty fully utilized. As you know, memory is pretty fully utilized. So we did see a little bit of pickup in mainstream, which is probably where the most available capacity kind of resides today, and we're encouraged by that.

As you know, our MS business has been accelerating. So in the third quarter, it grew about 16%. And on a year-over-year basis, and it's kind of continued to accelerate as we've progressed through the year. So I do think it provides some tailwinds to us, particularly, I think, the CapEx that's going into place as that CapEx goes from kind of construction to fab build-out and kit up for tools to fab production I think that bodes well for longer-term MSI as well. So we feel like we're well positioned. The team is performing and customer engagement has never been stronger. Brian, did you have a follow-up?

Yes, I appreciate that. That's great color, Dave. Maybe going back to something you mentioned and maybe also in the prepared remarks. In terms of mainstream, obviously, comprising a lot of wafers in terms of unit-driven volume. I think you made mention that geographies like Korea, maybe Southeast Asia, that might not have been specific to you driven that might have been more broader. But we have heard that some sincere pickup in wafer or utilization rates, I would say, actually in China, where obviously, they've had a lot of investment in capacity over the years. Is that something that you can corroborate? Is that something that maybe gives you some encouragement in terms of what mainstream could kind of look like moving into next year?

Mainstream, we did see -- let's talk broadly first. Mainstream, we did see a little bit of a pickup in mainstream demand, particularly the portions of mainstream that are most tied to AI. So kind of power management, we did see some good performance in kind of industrial automotive. So I do think that there was a little bit of pickup in those portions of the market for mainstream. Again, I'm speaking very broadly at this point.

I think for mainstream, we have talked about this kind of all year is that a lot of those mainstream applications or maybe in markets, they require memory. And as you know, memory is incredibly tight. So if the end market requires memory, I think you ultimately have to look and say, well, how much total memory is available and where is it going to go and be allocated, and so I do think that it kind of creates kind of an upper ceiling perhaps on maybe what we can expect from mainstream over the near term until more capacity comes online for memory.

Specifically to China, China, we were flat in the quarter. I think we were up 6% sequentially if memory serves. We're now flat for the year in China, which I think is good momentum because remember, we had some tough comps to Liberation Day from a year ago. And so we've kind of picked up momentum as we kind of went through the year with China.

So obviously, the rest of the world that's more tied to the most advanced manufacturing has grown the fastest. I do think that China has kind of picked up a little bit throughout the year, and I think that's probably true broadly as well as for us specifically. Thank you for the question, Brian.

We'll go next now to [ Alexi Yefremov ] at Barclays.

Congrats on a great quarter. I wanted to ask you first question about the incremental margins. They were quite strong. Is it something we should expect near term given potential need for investments to support this growth. And also if you could address the differences in incremental margins between the 2 segments?

Yes. Alexi, thank you for the question. Look, I mean, as you pointed out, our incremental gross margin of close to 60% and our incremental EBITDA margin of greater than 40% is in line with our targets. I think we mentioned this before. That's how we want to run our operations. And so I think it was a bunch of little execution items that we did. A lot of this is self-help, right? And we talked about -- a little bit about productivity yield initiatives, how we were able to even control inventory and scrap. So there was a lot of folks who -- our manufacturing people did a fantastic job in actually producing more out of our factories in the quarter. And we think this trend is likely going to continue as we head into next year. Did you have a follow-up, Alexi?

I think, Dave, you mentioned that some of the pickup in the sales sequentially was due to being able to unlock some manufacturing capacity or just productivity. So to what extent was the sequential increase sort of market pull versus your internal ability to serve that market demand that maybe already was there?

I think the vast majority of it was our ability to be able to satisfy some demand that was already in front of us, but we were unsure if we were going to be able to complete it in the quarter. We made a couple of comments about how the book-to-bill has been quite robust. And so if you look at where we significantly outperformed, yes, we outperformed on the CapEx side of the business, but we also outperformed on units as well.

So I would say that CapEx was kind of the biggest contributor or the CapEx-related revenue, I should say, is the biggest contributor to the outperformance, but then as we kind of progress through the quarter, we did have more unit pull than we originally expected as well. So both demand that was in front of us as well as kind of, let's call it, quarterly consumption, both of those performed well, but probably slightly higher towards the -- weighted towards the CapEx business versus the unit-driven business for Q3.

We'll go next now to Timothy Arcuri with UBS.

Dave, I know you're probably going to talk about this. I mean definitely going to talk about this at the Analyst Day, but can you maybe give us a little bit of a sneak peek on what the rubric is for growth versus the market? I know you used to say 4 to 6 points of outgrowth, but it's been kind of all over the map lately. You were mostly undergoing, you undergrew in '25 and during the first half of this year. But in this most recent quarter, you were like 8 points above the market. So sort of like can you give us some breadcrumbs in terms of how to think about this rubric? Is it like still 4 to 6 points? Is it like less than that?

Thanks for the question, Tim. I'm going to give you an unsatisfying answer, but I won't make you wait completely for Capital Markets Day. For the more complete answer, please show up November 9 at Capital Markets Day. For the short answer, just to help you out a little bit in the interim. Look, it will be somewhat consistent to what we've articulated in the past, and we'll give you much more color around that at Capital Markets Day.

Okay. And then, Sukhi, can you just speak to the impact from Colorado and KSP on the margins? I know -- I mean, you're doing great. And I think KSP is still dilutive this year and probably still next year. And then Colorado is still in call, and I think it's supposed to be breakeven maybe in late '27, early '28. So can you talk to the impact from those? I guess I'm trying to get like what a clean gross margin would be if those weren't dilutive. .

Yes. Well, so good question, Tim. So let me just say on KSP side, we are actually in Q3, we reached breakeven. Big accomplishment for the team here. We actually reached breakeven in Q3, and as we look into next year, this quarter and Q4 and next year, we're pretty excited about the ramp we're going to be seeing in KSPs out. And I think we mentioned about Colorado we are currently focused on customer qualifications. The facility is actually operational. It's producing samples right now, and we expect revenue to begin in next year. So it's about a 12-month lag time between Rockrimmon and KSP South. But KSP South is now breakeven on a gross profit standpoint, and it will continue to improve as we head into next year.

And if I could just build on that briefly. So KSP specifically to enterprise gross margins dilutive now through most of 2027, as we exit '27, it should be somewhat neutral with respect to enterprise gross margin and then Colorado is going to run about a year behind kind of what we see happening in KSP. So the numbers that we're delivering today are with that both of those fully burdened with both of those facilities in the P&L. We will give you more color on where we think long-term gross margins could reside at Capital Markets Day.

We'll go next now to Jim Schneider with Goldman Sachs.

Just to follow up on the prior question. Maybe could you just give us your overall view on if we continue to get increases on the revenue side for the next couple of years as the industry seems to think we can have enough capacity with what you're ramping in Colorado, KSP, et cetera? And are you at all rethinking any of the sort of shutdowns or optimization on the existing manufacturing base at all?

Jim. Look, we -- as you mentioned, we do have strong demand. We have strong momentum. We have run that demand profile essentially against our internal capacity models. We feel quite good about our positioning. For '27 we feel pretty good about what we think '28 could be. And so we feel good about our 4-wall capacity. We think we have a lot of capacity left in the network to optimize and deliver through really the 4 main points that I've always kind of spoken about, it's network optimization, the centralization of procurement with all of our suppliers yield and then, of course, the productivity initiatives, both through labor as well as equipment.

So we feel quite good about that capacity we're going to constantly evaluate that. And we also recognize that there will be areas where we do get pinch points. We'll work to relieve those and we'll selectively spend CapEx to be able to unlock those. Did you have a follow-up, Jim?

Yes, please. And I realize this may be something you tackle at the Investor Day, but I'm curious a little over a year ago when you came into the company. I think you talked about potentially expanding the aperture of customer focus and expanding the sort of like the catch-on of sales and the kind of customers Entegris?pursues. Can you give us any kind of update on how that valuation is going?

Sure. The summarized update, and we'll go into more detail at Capital Markets Day. But the summarized update is we have never had more customer engagements and engineering engagements than we have today. We feel like we are communicating with our customers and engaging with our customers earlier in the process than ever. That's enabling us to then engage in the road maps earlier than ever. And then we think that that's turning into a plan of record wins, both for the long-term road map as well as quick spends and derivative product that you inevitably release based upon new and kind of half node manufacturing that occurs in the fab. So we're incredibly happy with those efforts. I think you're seeing some early signs of those efforts bearing fruit, and we'll talk more about it at Capital Markets Day.

We'll go next now to Chris Parkinson with Wolfe Research.

I'll do my best not to ask Capital Markets Day spoiler. Real quick. To drill into MS and CMP, there's been a lot of debate over the last couple of weeks and months on share gains momentum and kind of your position in both slurries and to a lesser extent, as I'd love to hear your updated thoughts on where those businesses are trending relative to expectations, whether or not there are any differences based on the competitive environments in various geographies. I would just love to hear your kind of broader thoughts as we progress towards the end of the year.

Sure. And I'll -- maybe we'll just talk to geographies really quickly, and I'll speak broadly and then maybe directly kind of target your question. I mean for the third quarter on a year-over-year basis, North America was up 22%; Taiwan, 41%, Southeast Asia, 51%, Japan, 29% I could go on. But we performed well across the geographies. We performed well in the areas where the most advanced manufacturing occurs, that's both logic and memory.

And then moving that conversation specifically to the MS division in CMP, MS has picked up momentum as we've gone through this year. And so you saw us kind of in the early part of the year, we were growing kind of in the low single digits. We moved into the mid- to high single digits, and now we're in squarely into the teens, if not migrating into the upper teens. That business is anchored by CMP and the CMP process.

So we feel very good about our position in slurries if there's an area where I wish we had a bit more capacity, it is pads. So that's an area where we have a small pinch point, and we're unlocking that as quickly as we can. But we feel quite good about that business, and we'll talk about it more Capital Markets Day. Do you have a follow-up, Chris?

Yes. I'd love to also hear your quick thoughts. I mean part of the -- just speaking about this incremental $1 billion that you can unlock over the next several years. You gave us some helpful color on KSP as well as Colorado. I'd love to just hear your kind of broader thoughts on -- now you've been in the role for just over a year on your overall asset base utilization perhaps how you're doing things a little bit differently just given the growth trajectory and how that continues to evolve. Just 1.5 years or so, just a preliminary assessment would be particularly helpful.

Sure. Thanks, Chris. Look, I'll try to be brief on this one. We can certainly go into it in more depth at Capital Markets Day. But the way I think about it, there's no more -- there's no more attractive dollar than investing in CapEx at a brownfield site, so at a site that already exists. And the reason why that is -- because that's where you get the most fixed cost absorption, you get to leverage the existing team, the existing infrastructure. And so each incremental dollar at existing sites to drive additional scale is a dollar that returns incredibly quickly.

And so what you're actually seeing us do is you're seeing us invest dollars and we are investing to expand capacity today. We're investing at the current sites where we're already located and have critical mass. And so we are not standing path on exactly the capacity that we entered the year with, even though we've closed 3 dilutive facilities, we actually have more capacity right now than we did when we entered the year.

And so we're optimizing the network. We're investing in the places where we have the most scale. Those are the dollars with the highest return and those are the dollars that unlock the most capacity for us. That's what we're going to continue to do, is drive scale, efficiency and critical mass at those brownfield sites that exist. And then ultimately, we'll also continue to optimize the network. Thank you for your question, Chris.

We'll go next now to Charles Shi with Needham.

Maybe the first one, Dave, I know this is going to be your second guidance to Q1. You guided a mid-single digit. But I look back the financial history of Entegris, minus 5%, a sequential down in Q1. That's not normal. Your normal seasonality is way less than that, and we would love to thank maybe very big up cycle like this year, maybe going into next year seasonality should be thrown out of the window. But why you think Q1 would be down minus, will be down 5% based on what you're seeing right now?

Charles, I'll start, and then I'll turn it over to Sukhi for the details. Look, as you know, we really only guide 1 quarter at a time, and that's fourth quarter that we guided up at midpoint about 25%. We were trying to give you some early indications of color for Q1. And Sukhi, maybe do you want to build on that?

Yes. Look, I mean, like you said, we do guide 1 quarter at a time. But based on our visibility, Charles, that we have today, and we continue to see very healthy demand and strong momentum, right? And so -- but if you look at our Q1, it really reflects normal seasonality and fewer selling days for us. Nothing more than that, especially given that 75% of our business is unit driven. And so that's what -- that's why I think we wanted to give you some extra color on how Q1 is going to trend. But the underlying momentum, the orders, what we're hearing from our customers are pretty strong.

Did you have a follow-up, Charles?

Yes. Maybe not trying to ask you more forward-looking, but maybe looking back 2026, 8% MSI, let's say CapEx is 30% year-on-year. The blended market growth is somewhere about 14%. And if the math is right, you did have 300 bps of outperformance relative to the market this year. Last year, I don't think you had outperformance. So want to ask you, if you look back at 2026 based on your current guidance, out of that 300 bps outperformance, what you see as sustaining will you see maybe a little bit of a transitory at this point.

Sure. I guess the first comment I would make is 30% -- roughly 30% of our revenue is driven by CapEx but the majority of that is actually driven by fab starts and fab construction, which doesn't really fall in period for us for 2026. So I would characterize our outperformance is probably a little bit higher than the number referenced but that's neither here or there.

I think looking back at 2026, I think CapEx remains strong as we roll into 2027, certainly all the third-party forecasts seem to indicate that, that direction. I think fab construction that didn't fall into period for us for 2026 would probably fall in the period for 2027. So I think that that bodes well for us.

And then I think MSI, MSI it's improving and it's improving because of the that's being put online. But it's also improving because the mainstream picked up just a little bit. So I think we all kind of know like which fabs are under construction, which fabs are moving into the tooling and production and qualification stage.

I think we can take those and we can kind of map those out over time and make assumptions on how they ramp, all of which I think bodes well. I think the wildcard is MSI, 55% of MSI is driven by mainstream logic. I think the wildcard is where does utilization go for mainstream logic improved slightly. I think that helps in the second half of this year. Does that improvement continue in '27. And if so, then I think that's kind of another plus in the positive column. Thank you for your question, Charles.

We'll go next now to Edward Yang with Oppenheimer.

Dave, Sukhi. Just a final question on this first quarter revenue moderation you're seeing chalking up to seasonality. Could you split that between MS and APS, I would think it would be weighted more on the CapEx side of the business?

Actually, it will be both. I think we are -- what we do see will be a double-digit growth for both MS and APS division Q4 and Q1. So I think overall, just -- I think if you think about our normal seasonality and a number of -- it's lesser selling days, right? And so that's why we're going to see a slight dip there, but the momentum, the underlying momentum from customers, the orders are pretty strong. Do you have a follow-up?

Maybe a question for Dave. In the past, again, you've described the multi-wave demand cycle, fab construction followed by WFE ultimately higher wafer starts. Just wanted to get a sense with revenue now accelerating beyond your prior expectations, which inning are we in each of those 3 ways? And are they starting to overlap?

I really -- I mean each individual fab is kind of its own wave. But I really think that we're probably in the earlier part of the innings. Staying with the World Series theme, I think we're in the earlier part of the innings here, just simply because of the fab construction that we've seen and how much has been broken ground, how much has been completed with Shell, how much has been being facilitized in tools.

I think we're in the earlier part of these innings and not the latter part. So I think this CapEx that I think everyone is anticipating to occur in '27, I think probably the biggest part of units are more like '28, '29, not '27. So I think we're still in the CapEx portion of the cycle, and perhaps that inflects maybe at the end of '27 perhaps middle of '28, something like that would be my expectation. But we'll see how it goes. As you know, semi is very dynamic. Thank you for the question.

We'll go next now to John Roberts with Mizuho.

This is [indiscernible] on behalf of John Roberts. Can you provide some insights from your conversations from your customers that would suggest that they're open to give some pricing?

Yes. Look, on pricing, our approach hasn't really changed much on pricing. We have really deep, long-standing relationships with our customers. and our priority is right now to support them as the demand accelerates and while being appropriately compensated for the value we provide. So it's really important to note that our conversations with the customers are around -- right now around the commercial engagements and how to get the product to them faster. But we always like -- we always evaluate pricing at the product and customer level.

But we -- as we said -- as Dave mentioned in his prepared remarks, we have not included any material pricing actions in the quarter for Q3 or Q4. To the extent there is any pricing actions, it will be on new orders, but not an existing backlog.

And if there's something that I'm incredibly excited about is on a year-over-year basis, I mean we've improved adjusted gross margin by 530 bps year-over-year, independent of any pricing action. So the self-help initiatives that we talked about in the latter part of 2025 are starting to bear fruit. And as Sukhi mentioned, we'll have ongoing conversations with customers with respect to making sure that we can deliver product and receive value for that product.

Did you have a follow-up?

Yes. So -- and are you expecting to receive more tax refunds in Q4? And what would be the magnitude for that?

No, we're not.

We'll go next now to Pete Osterland at Truist.

Just wanted to dig into the segment margins a bit. So just starting with the significant step-up that you saw from margins in APS, at the revenue levels you're expecting in the near term, our 34% plus segment margin sustainable? Were there any unusually favorable margin dynamics around mix or anything else in the third quarter?

No. Look, from an APS perspective, we don't talk a lot about individually. We don't optimize for the segments at Entegris. But the APS business is performing incredibly well. There were really no unusual onetime items that flow through the APS segment. The team performed well. My expectation is the team will continue to perform well. And I think what you're seeing on the MS side of the business just for completeness is you are seeing leverage in the MS side of the business.

In fact, I think gross margins were up I don't know, around 350 bps on a year-over-year basis. I think it's 60 bps sequentially in MS. But we just see tremendous opportunity in that business. And we're increasingly convinced that it's our right to win in the MS business. And so we're making some significant investments there to capture those opportunities. Did you have a follow-up, Pete?

Yes, very helpful. I also wanted to just ask on cash flow expectations. Do you expect to deliver higher free cash flow in fourth quarter versus third quarter. I guess any working capital considerations to call out? And just wondering, overall, what is a reasonable normalized free cash flow conversion rate that you're expecting going forward?

Yes. Look, we'll provide more information on our free cash flow targets at the Capital Markets Day, but more near term for Q4 we are -- we do have some CapEx spending and working capital requirements to support the growth that we're seeing from our customers, and that's what's embedded in our guidance that we provided to you.

We'll go next now to Mike Harrison with Seaport Research Partners.

Congrats on a nice quarter. You mentioned in APS that you were seeing good growth in micro environment. But then you also said you were benefiting from better mix. I guess my question is, is that microenvironment business, a better margin business than it used to be? Or should we still think of that as being kind of a below segment average margin? .

Yes. We don't talk about margins on a specific product line, honestly. But I think when we ask for -- when we sell our products, we expect to get the value for our products, and most of our products are pretty good margin structure. And Dave, you want to add anything to that?

Yes. I think just talking briefly about the microenvironments business. When you think about new fab construction and you think about those fabs that need overhead transport for wafers for the protection, security, and the contamination control environment of those wafers. We invented the books 30-plus years ago as a company. That's an area where we have a very significant market share in that market. It is a market that is growing meaningfully and that's an area where we're participating, as you would expect as the market leader in that space.

So quite happy with that business and the way that it's growing, and the way the team is executing, and we look forward to ramping that Colorado facility where we're going to get a lot of those new units for the Americas. So happy with how that business is performing. Do you have a follow-up, Mike?

Yes. Just another 1 on APS in the filtration and purification opportunity, you guys in the past have projected that advanced nodes would be kind of multiples of prior nodes in terms of the purity requirements and the revenue associated with that. As you're seeing some of these new nodes actually move into production and starting to move into higher volume manufacturing. Just curious how the filtration and purification revenue is comparing to your projections. Is it tracking expectations? Or is it maybe even a little bit better than you anticipated? .

I think when you think about migrating down to 2 nanometers and even below, I mean, 2 nanometers is 20 angstroms in a molecule, a large molecule is about 5 angstroms. So I mean you're essentially down at the atomic scale. I know we've talked about it in a while, but we're truly down to the atomic scale.

I think contamination requirements have increased something like 3 orders of magnitude over the last 25 years. It's incredible how tight the controls are for contamination for the latest generation of semiconductor manufacturing. And so as the leader in filtration and purification we think that bodes well for us. We've talked about this for a long time about how advanced manufacturing drives higher requirements both on the material side so that you can enable performance and on the purity side so that you can protect yield.

And I think both divisions you're starting to see them really come together from a company perspective where you can no longer just worry about one, increasingly, you need both of those divisions to have a successful process. And so the promise of the business looks like it's finally coming to fruition. I think you're seeing that on the contamination control side as you referenced, and we're very happy with the performance and trajectory of the business, and we certainly look forward to talking more about that at Capital Markets Day. Thank you.

Thank you. And gentlemen, it appears we have no further questions this morning, so that will bring us to the conclusion of Entegris' Third Quarter 2026 Conference Call. We'd like to thank you all so much for joining us today and wish you all a wonderful day. Goodbye.

Welcome to the Entegris Second Quarter 2026 Earnings Conference Call.

[Operator Instructions]

I would now like to turn the call over to Jeffrey Schnell, Vice President, Investor Relations. Please go ahead, sir.

Good morning, everyone. 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 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. The second quarter was another strong quarter for Entegris as we continued to capitalize on accelerating AI-driven demand and a 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 and 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 continue 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 road maps 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 an 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% to 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 8 to 10 advanced logic facilities, 7 to 8 advanced memory facilities and 6 to 8 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 photo filtration 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 road maps. Similar to advanced logic, increasing memory complexity higher 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 road maps. 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 HBM 4 and TSV CMP wins, along with approximately 2x 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.

And 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 FPS, 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 [indiscernible] 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 continue to invest for growth. We have increased our factory direct labor a double-digit percentage from Q4 that will help unlock additional capacity. We expect to build on this momentum as the year progresses.

Operating expenses on a GAAP basis were $255 million in Q2 and $204 million on a non-GAAP basis or approximately 23% of sales. The majority of the year-over-year increase is driven by higher variable compensation associated with the stronger business performance. Adjusted EBITDA in Q2 was $251 million or 28.4%, also above our guidance range as the benefit of higher gross profits flowed through. The GAAP tax rate in Q2 was 15% and the non-GAAP tax rate was 16%. GAAP diluted EPS was $0.61 per share in the second quarter and non-GAAP EPS was $0.93 per share.

Now switching to our segments. Material Solutions delivered second quarter sales of $371 million, up 5% year-over-year, driven by advanced deposition materials, selective etch chemistries and CMP. Growth in Material Solutions accelerated from the first quarter, and we expect the MS segment to deliver double-digit year-over-year growth in the second half of 2026 benefiting from increased demand across deposition, CMP, etch and implant materials product lines MS adjusted operating margin was 20.9%, in line with the prior year, higher raw material and logistics costs, together with planned investments in direct labor associated with customer demand were largely offset by improved manufacturing performance and productivity initiatives across the segment.

APS delivered Q2 sales of $515 million, up 17% year-over-year, driven by strength across both unit-driven and CapEx-related demand. Liquid Filtration had its fourth consecutive record quarter. Our microenvironments business led by FOUPs delivered its strongest performance in more than 3 years. Demand was strong in Taiwan, due to expansions in leading-edge logic and advanced packaging capacity. We also saw a return to year-over-year growth in North America. APS is benefiting from multiple growth drivers. We are seeing increasing demand tied to higher wafer starts, advanced node transitions and accelerating semiconductor capital spending. These trends are creating opportunities across the portfolio that should persist throughout this year and beyond. Adjusted operating margin for our APS segment was 30.3% for the quarter, expanding both year-over-year and sequentially. This performance reflects volume growth, favorable mix, continued improvements in operational execution more than offsetting costs and investments we are making for the customer demand.

Now switching to cash flow and the balance sheet. We delivered free cash flow of $120 million in the second quarter or 14% of sales reflecting higher earnings, lower capital spending and continued working capital improvements. We reduced our cash conversion cycle by approximately 20 days year-over-year and repaid an additional $200 million of debt in the quarter.

As a result, net leverage improved to 3.4x, and we now expect to end the year below 3x.

Moving on to the details of our third quarter outlook. We expect Q3 sales to range between $905 million and $935 million, a year-over-year increase of approximately 14% at the midpoint, reflecting continued momentum in the industry. Gross margin is expected to be between 47.5% and 48.5%, both on a GAAP and a non-GAAP basis, marking another improvement from Q2 and more than 400 basis points of expansion year-over-year.

At the midpoint, we expect GAAP operating expenses of approximately $260 million and non-GAAP operating expenses of approximately $215 million reflecting higher variable compensation and investments to support the growth we are seeing across our portfolio.

At the midpoint, we expect Q3 EBITDA margin to be 28.5%, net interest expense of approximately $43 million and a non-GAAP tax rate of approximately 15%. We expect GAAP EPS between $0.75 and $0.83 per share and non-GAAP EPS between $0.96 and $1.04 per share. And we expect depreciation to remain largely stable for the balance of this year at approximately $34 million per quarter.

Looking ahead to our fourth quarter revenue expectations. With our current visibility, we expect revenue to grow approximately 4% from the midpoint of third quarter's guidance range. which represents mid-teens percentage growth year-over-year.

Finally, I'd like to update a few modeling items for the full year 2026. We expect net interest expense to be approximately $180 million, the non-GAAP tax rate to be approximately 14% and diluted share count of approximately 154 million for the full year and CapEx of $250 million. We entered the second half with strong momentum.

Since joining Entegris, I have spent considerable time with our global teams and have seen the strength of our technology, market position and people. My near and midterm priorities are to deliver profitable growth helped drive operational excellence and allocate capital with discipline. Before turning the call over to questions, I'd like to mention that we will be hosting our Investor Day on November 9 in New York City. We look forward to sharing a more detailed view of our AI materials platform strategy technology road map and long-term financial framework. Seating will be limited and by invitation only. Registration information will follow in the coming days. The event will also be webcast live for those unable to attend in person. With that, operator, let's open the line for questions.

[Operator Instructions]

Our first question will come from Melissa Weathers with Deutsche Bank.

A lot to talk about. I guess my first question on the fab CapEx outlook. I was just hoping you could talk a little bit more about what you're expecting in terms of your CapEx-oriented business. We're seeing a lot of fabs get built out. So just trying to think about how you guys are -- how we should be modeling that business second half of this year and into the first half of next year. That would be helpful.

Melissa, thanks for the question. As a reminder, 75% of our revenue is driven by wafer starts and 25% by CapEx. Within CapEx, 10% is driven by WFE and 15% by fab construction. So tactically, for 2026, as you'd expect, we're seeing the greatest uplift in our CapEx business from WFE with our WFE order rates up at a growth rate that's very similar to the growth rate that's being reported by the WFE market, so call it 20% to 30%. We are seeing some benefit from increased fab construction in 2026, but the majority of that benefit will actually accrue to 2027, not into the second half of '26. So thematically, second half of '26 CapEx revenue driven by strong WFE growth, call it low double digits, very low double-digit fab growth and 7% to 8% unit growth. 2027 will benefit from much stronger fab construction growth followed again by WFE as those fabs are populated with tools which will then be followed again by increased wafer unit growth at those tools process wafers.

Also, I'd point out that I mentioned in my prepared commentary, we're currently tracking 20 leading-edge capacity expansions in the markets. That's about 8 to 10 in advanced logic, 7 to 8 in advanced memory and 6 to 8 in advanced packaging. So our teams are encouraged by the industry backdrop, and we're working very diligently to ensure that we've got supply position to deliver to our customers. Did you have a follow-up, Melissa?

Yes, I did. Maybe I'll first welcome, Sukhi, to the call. I guess, Sukhi, from the couple of months that you've now been in the seat, anything that stood out to you, any strategic priorities that you've been working on? And it was really helpful to hear about some of the rationalizations and the business exits that you talked about. So any strategic priorities that we should be looking forward to ahead of the Analyst Day.

Yes. Thanks, Melissa. Look, I mean it's less than a quarter that I've been here and my first impressions really is like the technology that we have here is critical. First and foremost, I mean, incredibly impressed with the technology of the company. Very few companies can deliver the innovation and the material science that Entegris can provide, be it on the purity solutions side or on the Advanced Materials Solutions side.

Second, what comes to mind here is that we have pretty strong positions in the fastest-growing areas of the technology space in semis, especially. And third, we have ample room to optimize and get the full entitlement out of the portfolio of assets that we have here. So those are my first impressions here being in the seat for less than a quarter. So with that backdrop, at least what comes to me in mind is like my near-term priorities are pretty clear. We need to help drive profitable growth, further enhance the operational excellence and efficiencies of our assets and deploy capital in a manner where we get the best return for every dollar spent.

Our next question will come from Elizabeth Sun with Citi.

I guess my first question is for the full year, it's good to see your guiding to Q3 and Q4, both up like 4% sequentially. So this for the full year, are you still unsure to be [indiscernible] target model of outperforming the market like 3 to 6 points and what will be the driver to maybe offset to the upside to the full year outlook.

Sure. Let me take that one a little bit and Sukhi, if you have any follow-up, please build on the commentary. For third quarter, at the midpoint of our guidance, we're essentially guiding up mid-teens. That implies more than 10% growth, both in MS and in APS. And so what you're seeing is you're seeing the business accelerate 5% year-over-year growth in first quarter going to 11% year-over-year growth for the second quarter, moving up to mid-teens year-over-year growth for the third quarter. So that's the guidance through the third quarter. Given our increased order visibility in our backlog, we did want to give you at least some improved visibility for fourth quarter, very similar to what we did in last quarter. We guided fourth quarter up sequentially about 4%. We'll tighten up that guidance when we get to our third quarter call. But based upon what we currently see, even that would be up mid-teens on a year-over-year basis, again, with MS and APS, both growing more than 10%.

So what we're seeing is we're seeing the business accelerate. We're seeing both businesses accelerate from the first half of the year into the second half of the year. And given all the activity, both in fab construction as well as more than 50 engineering engagements in new projects. We think that bodes well for 2027 as well. Did you have a follow-up, Elizabeth?

Yes. Thanks for the color. And on gross margin side, we did to see your Q2 is above the guidance. So my first question is, what's the upside in the Q2 gross margin? And then in Q3, it's nice to see you are touching 48. I'm not asking for like a new target model. But like from this point, you are talking about your operational efficiency improvements, factory rationalization. I'm just curious what is the kind of baseline growth margin we should think of at this point?

Yes. Let me maybe take the big picture, and Suky, maybe you can color in some of the details. Look, we're very excited about the potential of our product portfolio. I saw here in third quarter last year and I spoke about how we had a tremendous amount of untapped capacity in the network I talked about how we were driving kind of 4 things operationally, the network optimization, the centralization of procurement, improved focus on yield and then a maniacal focus on productivity. And so when you think about all of those activities that you've seen us kind of consistently drive now for 3 quarters, we're actually making very good progress across all of those initiatives, including closing another dilutive facility announcing the closure I said -- should say, of another diluted facility. So we're very, very pleased with the progression, and we think we have significant room to continue to grow from here. Sukhi, do you want to talk about some of the specific dynamics Q1 to Q2 and then Q2 to Q3?

Yes. Look, I mean, our gross margin improved 70 basis points sequentially and I think it's also important to note that we delivered pretty strong incrementals despite intentionally investing ahead for demand. So the -- that should show some proof points that we're on the right track here. The underlying business continues to benefit from productivity and operational improvements and our ability to drive structurally higher margins and flow through as we continue to scale. Look, I think underlying business continues to benefit from all of this, and I think we'll be in a position to drive structurally higher margins through the cycle.

Those are good points, Sukhi, and if I could just maybe build on one comment that you had. We are investing ahead so that we can unlock that capacity that I mentioned across the network. For example, we've increased direct labor by more than 20% since the end of 2025, again, investing ahead of the capacity and the products that will be delivered in the future quarters. So we're making good progress to unlock really the capacity that exists in our manufacturing network.

Our next question will come from Timothy Arcuri with UBS.

I don't know, Dave, if you or Sukhi want to take this. But I guess my question is on the gross margin on rubric. So you dropped through between 70% and 75% year-over-year in June, the guidance for September 75%, 80% drop through. Are there any one-timers in there? Like, I guess the question is, is that a reasonable drop-through to use because I don't see any reason why you should be growing like a year from now, you should be growing any less than what you're doing now. So if I use the same kind of mid-teens, you should be -- and I use that kind of drop through your gross margin should be in the 52% range a year from now. So I guess the question is like, are there any one-timers helping your drop-through right now? And is that a fair sort of [ mid-70s ] to use?

Yes, thank you for that question. Look, I think on a year-over-year basis, there was about 150 basis points of uplift because of the useful life adjustment that we had. And so if you take that off, we did also increase margins by more than 300 basis points, excluding that. So as you look forward into next year, I think what you would -- we'll give you an update on more of our target model at Capital Markets Day. But typically, I think what you should be seeing, it's like incremental flow-through should be in the 60% range. Dave, do you want to add anything there?

I mean, look, we think the right would be from Q1 to Q2, we had nice flow through gross profit over revenue of around 60%. It's a similar number at midpoint from second quarter to third quarter sequentially. That takes out any kind of year-over-year dynamics related to useful life. So we think that's probably the best comp as you model out into the future.

Okay -- I do. I do. So Sukhi, just on the Q4 guidance, it's I mean up 4 is only really in line with kind of normal seasonal for Q4. So it still seems a little conservative. I mean you guys are doing great. Don't get me wrong. But up [ 4% ] still seems a little light. Are there anything -- any like dynamics that you call out in Q4?

No, that's a good question. Look, I mean it's important to put the guidance in context. Look, a 4% sequential increase in Q4 would still translate to a mid-teens year-over-year growth represents pretty healthy growth rate and reflects our continued momentum across our businesses. When you consider our composition of revenue, right, 75% of our revenue tied to semi unit growth we expect to grow, but that's expected to grow about 7% to 8%. The remainder is tied to capital spending. So our outlook implies a meaningful outperformance relative to the underlying semi market. This is again supported by content gains we're seeing technology transitions and our exposure to some of the leading-edge pure-play AI enablers. Dave, do you want to add something to that?

Well said.

Our next question will come from Bhavesh Lodaya with BMO Capital Markets.

Maybe on the strong -- maybe on the strong growth that you are seeing in liquid filtration. Could you add some more color as to maybe the regions that this is coming from? Is it new fab capacity or just higher operating rates? And if you could comment, is KSP playing at all in this as well.

Sure. When you look at liquid filtration, as -- when you think about how important micro-contamination is to the most advanced nodes. Once you get down to sub-5-nanometer and down to 2 nanometer, I mean, 2-nanometer is 20 angstroms and depending on the size of the molecule, you can have molecules that are 5 angstroms. And so purity is becoming increasingly critical at the most advanced nodes of manufacturing. And so you've seen liquid filtration kind of grow disproportionately as more production capacity is added to the most advanced nodes. And that's true. The most in advanced logic, but it's also becoming increasingly true across memory and in limited examples across advanced packaging as well. So as the market expands capacity at the most advanced nodes, it drives tighter requirements that drives a greater need for filtration. With respect to operating -- operating sites like KSP, we produce the majority of our filters kind of across 3 sites, so one in North America, one in Japan and obviously, KSP in Taiwan. KSP, I would categorize as on track. We are on track perhaps to break even this quarter, probably a little bit ahead of schedule. But KSP, I would color green and I would count that as on track for 2026.

We're through a lot of the qualifications. There's still more to come. but we're basically now into the ramping stage of KSP. And when you think about ramping KSP, you're going from essentially a facility that was losing money on a stand-alone unit of 1 basis to essentially what would be kind of breakeven touch wood here in the third quarter, certainly in the second half of this year. And then as we move and migrate into 2027, it will move into the dilutive category and then ultimately into the enterprise average gross margin category. So making good progress, and I would color KSP as being on track and it is participating in some of the liquid filtration ramp that we've spoken about. Did you have a follow-up, Bhavesh?

Yes, please. And great [indiscernible] on KSP. For the follow-up, Dave, you have mentioned before that the business has around $1 billion of incremental sales capacity without adding like more plans and more capacity there. Is it possible to bring that $1 billion between the consumables side and the CapEx exposed part of the business? My guess is given how the CapEx business has performed over the last few years, you probably have more capacity than the 25% mix that you have for your business?

I actually don't have the breakdown off the cuff between units and CapEx. What I did mention last year was that we had significantly greater than $1 billion. So I wouldn't just limit it to $1 billion of incremental capacity in the network. It's more than that. It is broad-based. It is across units and CapEx. I don't know that split off the cuff. But I can tell you, as I sit here today, we have increasing confidence that we can satisfy the vast majority of the demand that we see in front of us. with the current manufacturing network with limited capital investments from here. So we have to do some things. We had to spend some money ahead to unlock that capacity. But by and large, we believe that we can satisfy the current demand that we have visibility to through the current manufacturing network.

Our next question will come from Jim Schneider with Goldman Sachs.

Clearly, the outlook for WFE growth continues to get more constructive for 2027. I think, Dave, you referenced the fact that your CapEx-related business, given the fab construction profile could start to outpace -- the construction piece could actually outpace growth next year. So I'm wondering what are some of the reasons why your CapEx-related business, that portion of the business would or would not exceed WFE growth for 2027?

It's really just the timing, Jim. If you think about the 25% of our business that is CapEx, 10% of it is WFE-driven. 15% of it is fab construction driven. We don't get revenue on time 0 of a fab construction. So we don't get revenue when you kind of move dirt, pour concrete, place steel. We get revenue kind of 12 months post that once you start facilitizing the fab, then we get another slug of revenue as you're taking that process piping to tools, then we get another slug of revenue with the tools, with the placement of those tools. And then finally, we get the unit volume at the end. So kind of a slug of revenue, let's call this rounding, call it, 12 months. another slug of revenue around 18 months, WFE around 24 months and units thereafter.

And so really, the fab construction piece, given all the fabs that we're currently tracking assuming that they move into the construction build-out and tooling stage, we think timing wise that you kind of migrate from second half of '26 being more WFE driven to perhaps '27 being a bit more fab construction driven towards the end, maybe a bit more WFE. WFE continues to be strong, obviously, but then you start to get units out probably in '28, so we think we can have these 3 waves of demand, if you will.

That's very helpful color. And then maybe as a follow-up, Dave, when you took over as CEO, I think you sort of referenced the fact that you would be looking at different elements of strategy, including your sales strategy and maybe thinking about entering parts of the market or being more aggressive in parts of the market where you hadn't been previously. Can you maybe give us sort of an update on the overall sales strategy now?

Sure. We have an enterprise sales team now that sits at the corporate level which tracks all of our opportunities across kind of our top 35 customers, which represent the largest portion of our business. We've looked at all of those customers, we've tracked our product line placements within each one of those customers and have developed very detailed plans, specific customer by customer to then go forward and kind of penetrate those accounts in greater volume with also more product line coverage. So that's the high-level kind of sales strategy that's somewhat different than what we had done historically.

In terms of portions of the markets that we're interested in, we're going to color in the lines a little bit more at Capital Markets Day. So we hope to see you in November at Capital Markets Day. But we've talked about for example, advanced packaging, that's an area where historically the company has not played in a significant way. We've always been more front end of line focused in the fab. As you know, advanced packaging is growing incredibly quickly. There are some portions of that market that that are not as attractive to us, but there are also some portions of that market that are attractive to us.

We have about $100 million runway plus or minus in that portion of the market today, that's an area that we would like to see our business grow more quickly as well as have more product placement across categories in that portion of the market. So we'll color in more of the lines at Capital Markets Day, but an enterprise sales strategy, customer by customer plan across all product lines, not just a few product lines, deep customer engagements from an R&D perspective, more than 50 projects in flight and then, of course, some attractive sams that are growing quickly, example being advanced packaging that we're looking to penetrate a little bit more deeply in the future. And with that, maybe I'll end it there, and we can color in more of those lines at Capital Markets Day.

Our next question will come from Charles Shi with Needham.

Maybe the first question by now, I mean, a lot of your customers, customers or maybe customers, fab customers are signing LTAs, et cetera, securing pricing with the customers, their customers. But wondering from a materials perspective, from your perspective, any opportunity for your industry to you think about maybe you should sign LTA as well? And maybe you should discuss pricing with those customers and maybe capture what's the fair value for companies like Entegris.

Thanks, Charles. We do have some supply agreements with our customers. I would say we've been approached more recently to engage in more supply agreements given the current demand environment, and that's an area that we're certainly looking at very closely, not only from a pricing perspective [indiscernible] compensated for the value capacity and technology that we provide. But our #1 priority right now is making sure that we can unlock the manufacturing network that I've spoken so much about and then be able to get that fixed cost absorption, get that volume and provide the products that our customers desperately need as they engage in their ramps.

As I mentioned, we're currently tracking more than 50 engineering projects with customers. These are long-term engagements. There's more than 20 advanced fabs that are being built and so while our guidance today doesn't contemplate material pricing, we are confident that we will be compensated for the value that we bring. Did you have a follow-up, Charles?

Yes. Thanks, Dave, for the color on pricing on LPA and all those stuff. I want to ask you a product question. I know, I mean, from time to time, asking a question about the single product, it's kind of tough. But for what it's worth, Moly has been a focal point in a lot of the investor discussion for whatever it's worth again. But we are -- we've been hearing from some of the equipment companies that at least there's a third equipment company entering the moly deposition at least in the memory space. Want to get your thoughts on overall moly growth, what you're seeing today going to next year and more importantly, it looks like now it's a 3 OEM equipment companies in the race. Are you agnostic relative to the puts and takes of the market share among those three.

Yes. Thanks, Charles. Look, moly, we haven't -- we have not seen in the wild, the third entrant in a meaningful way as of yet. It's largely a 2-horse race. As we see it right now, obviously, we're staying close to this market. Moly is up significantly on a year-over-year basis. I don't have the exact number in front of me for second quarter, but I think the number was more than 20% on a year-over-year basis, up in the second quarter. Memory volumes are starting -- and I'm referring to NAND, are starting to grow to kind of the high 200s or the 300-plus layer count, which is what's driving that need for moly. We believe we are very well positioned there. We have -- moly is a -- it's a unique and a novel chemistry and it's a new chemistry for the memory market. It's a chemistry where you not only have to deliver a delivery cabinet that has very stable pressure with a molecule that is incredibly aggressive from a process piping perspective, but you have to sublimate a solid into a gas and deliver it at pressure and at temperature to get the right to get the right performance out of the memory process. So we're very [indiscernible] with our position. We think, overall, it probably doubles for us on a year-over-year basis, '26 versus '25, and we're happy with the performance and the hard work the team is doing.

Our next question comes from John Roberts with Mizuho.

Maybe you could back up a little bit and tell us where you are overall in your footprint optimization program. You took a couple of actions in the quarter, but put that in perspective for us in terms of what's to come.

Sure. Let me maybe broaden it out and talk a little bit about what are we trying to drive overall for for manufacturing and operations. We have network optimization, which is the rationalization that you referenced. We have centralizing procurement, which is driving more leverage throughout our total procurement supply chain. We have a maniacal focus on driving yield, reducing scrap improving throughput through those activities. And then, of course, productivity and productivity is measured across both people as well as machines and tooling.

And so those are kind of the 4 very high-level work streams that we have been working on now for almost a year coming up on a year. We're making good progress across all of those. All of those have meaningful potential to expand gross margin or expand profitability while driving like reduced future capital investments, so increasing units driving increased profitability by using the same kind of fixed footprint. So those are the big efforts.

In terms of additional rationalization, demand remains strong. We mentioned that demand increased materially in the middle of the first quarter and that we were taking a little bit of a pause on rationalization until we determined exactly where that demand signal settled. Demand increased again in the second quarter.

And so I'll kind of play back the commentary from the first quarter that we're going to kind of carefully evaluate right now where this demand signal settles because right now, the demand profile is continuing to increase from a level that we thought was already elevated in Q1. So no additional plans at this time for incremental network optimization. We still have roughly 35 manufacturing facilities. We will utilize them all to the fullest extent. And then to the extent that we see opportunities in the future, we'll come back and update you at that time. Did you have a follow-up?

Yes. And then as the balance sheet continues to improve, how are you thinking about bolt-on M&A? There's still a fair amount of white space across your customers' needs?

Yes. Sukhi, feel free to chime in on this, if you'd like.

Sure. I mean, our immediate near-term focus really is on reducing our leverage. We have a clear path, right? I mean, so as we mentioned in our prepared remarks, yes, we will get to under 3x net leverage by the end of this year. In fact, we are actually -- in the month of July, we repaid another $25 million of debt. So that still remains our top priority. But overall, I mean, the way we look at investments here is relative to our cost of capital, we'll look at internal investments and the return we get from that -- those type of investments, and then we look at CapEx related investments.

And then finally, external M&A. Each one of them has different risk profiles to it. But we'll be looking at each one of these areas with the view of actually getting the right type of return for each of the investments.

And if I could just build on something that I'm incredibly excited about. The rate and pace of deleveraging is happening significantly faster than I expected. I never anticipated that I could sit here on this call today here in August and be able to tell you that we expect to end the year with a net leverage ratio that starts with a 2. That was an expectation that I did not have starting this year. And so the team has done a great job driving expansion in gross margin. They've taken that gross margin all the way down to net income and even better, they've taken it all the way down through free cash flow through a lot of the work that's been done on the working capital side.

And so I expect that great work to continue the reward for good work is even more work, and we're going to work very, very hard in the second half of this year to continue to drive free cash flow to reduce -- continue to reduce our leverage. And then as we do that, it opens up a lot of opportunities, as Sukhi mentioned.

Our next question comes from Mike Harrison with Seaport Global.

One of your competitors today suggested that they think they're seeing some share gains in CMP slurries and cleans. I was hoping that you could talk a little bit about how you're seeing the competitive environment within CMP and whether you think you're encountering any share shift one way or the other?

We feel good about our CMP business. We've got nice growth rates in CMP. We actually think that we have some very market-leading growth rates in pads. We think we're successfully growing, expanding and defending plans of records in slurries. And so when you look at our CMP business overall, we're quite pleased with that trajectory, including some of the inroads into advanced packaging that weren't in place a year ago. So overall, we feel good about our CMP business and as we mentioned, MS is a business that's accelerating as we go through the course of this year, expecting more than 10% growth in the third quarter, implying more than 10% of growth again in the fourth quarter. And so very happy with the MS business overall and then specifically with the CMP business. Did you have a follow-up?

Yes. My follow-up is specific to the molybdenum business. You talked a little bit about that -- the growth that you're seeing there. But I'm curious, you've talked in the past about the need to optimize the CMP solution as well as selective etch and maybe some of the filtration components around that. Are you seeing that customers are adopting that full optimized suite from Entegris or are they picking and choosing different suppliers for the different aspects of molybdenum deposition at CMP.

Look, specifically for molybdenum and the majority of the envelope tends to sit around the distribution cabinet that I mentioned and the actual molecule itself. The other portions of that process, as you mentioned, both the etch as well as some of the follow-on processes. Those are, by and large -- those are, by and large, separate buying centers today.

Our next question comes from Chris Parkinson with Wolfe Research.

Just in terms of what you're expecting in the second half on a sequential basis, both 3Q and 4Q. Can you just hit on your expectation for mainstream operates into the second half of the year and then as well as HBM as a potential memory. Just any color there would be greatly appreciated.

Yes. Mainstream demand remains mixed. There's memory related pressure on some of the consumer markets, but that's offset by strength in some of the AI-related applications like power management and silicon photonics. So we see mainstream as improving but still somewhat mixed because obviously, there's a lot of consumer-related markets, mobile being a great example that sit within mainstream and the memory pressure on those markets not to be discounted. We think foundry utilization in the mainstream has improved to probably 80% to 85% depending exactly on which mainstream provider you're looking at. But I do agree, I think the direction of travel seems to be modestly higher. So I think our view on it is just that it's slightly improved compared to last quarter, but we still expect it to be tempered and below the trend growth for 2026 and potentially longer pending the outcome of memory pricing and availability. Did you have a follow-up, Chris?

Just a quick one actually. Just -- can you just give a little extra framework on the businesses in life sciences that you are now out of in terms of just the optics on a segment level if you have been available?

Yes. So Life Sciences, the business we exited. Think of it as less than $20 million of annual revenue. Think of it as as being more like fluid management type products. So we still have some filtration products for life sciences. That business is still ongoing. Think of this as more fluid management and life sciences. It did have a dilutive margin both gross margin as well as a significantly dilutive EBITDA margin and so given the tremendous growth in semiconductors and management time, effort and focus it made sense for us at this time to announce the closing of that business and the wind down of that stand-alone facility.

Our final question for today comes from Edward Yang with Oppenheimer.

Welcome, Sukhi. Nice quarter. On the MS side, it's great to see you guiding for double-digit growth in the second half, but it was a bit below industry MSI in the second quarter. And I just wanted to close a loop on that. Was that just timing? And the segment margin there was also down year-over-year. Do you expect margins in MS to expand in the second half as well?

Yes. I'll talk about the growth and Sukhi, maybe you can comment on the margins. Look for MS, yes, it grew 5% year-over-year in the second quarter. MSI probably grew around 7% to 8% in the second quarter depending on what numbers you're looking at in the market and making sure that you account for the wafer shippers versus actual wafer starts. We think we were in line given some of the year-over-year related to liberation Day last year and some of the pull forward that we saw in that business. So I would say that we grew in line with market for the MS business for second quarter. And we think based on current visibility that we will most likely grow above market in the third quarter and the fourth quarter as well. Sukhi, do you want to comment on the margins?

Yes. Look, on the margin side, as manufacturing here becomes really complex and customers continue to migrate to advanced nodes. The number of opportunities that the company has is continuing to expand. And we're seeing that in the -- reflected in the growing set of SAM opportunities across the portfolio. So as you would expect, we are investing accordingly in areas where we see significant long-term growth in the MS division, and that includes capabilities such as moly precursors and other high-value opportunities. So operating leverage we're generating right now is being intentionally -- we are seeing intentional reinvestment to support future growth and that you should see that earnings power start to increase over time.

Edward, did you have a follow-up?

Yes, I do. So Dave, coming back to your comments around advanced packaging, and I understand you'll provide more detail at Analyst Day. But it didn't sound like you're interested in acquiring a bigger footprint there. So I was just wondering how quickly you could scale that business organically from that $100 million revenue run rate.

Well, we never said that we won't comment on acquisitions either way, but we never said we weren't interested in looking at some businesses in that space. I think when we look at the advanced packaging market, though, it's still being defined. So even today, you still have changes in materials. You have changes in packaging sizes. You have changes in like real substantive technical changes with respect to thermal expansions, conductivity, attach. So there's a lot that's still to be defined in the space. And it's a very rapidly growing space. Five years ago, it was very low single digits as a percentage of CapEx in the industry. And this year, it may be approaching double digits or approaching 10% in terms of percentage of total industry CapEx. So we think there are a lot of growing SAMs. We think there are a lot of Sams that can support the type of differentiated products that we can provide. And those are the spaces that we want to target. And we think there's more than enough opportunity to target those spaces and still have the right to win without necessarily facing the incumbent advantage. So stay tuned for more during Capital Markets Day, and I appreciate the question, Edward.

Thank you. This concludes today's Entegris Second Quarter 2026 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.

Hello, and welcome to the Entegris' First Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Jeffrey Schnell, VP of Investor Relations.

Good morning, everyone. Earlier today, we announced the financial results for the first 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 and 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 is Dave Reeder, our CEO. With that, I'll hand the call over to Dave.

Thanks, Jeff, and good morning. The first quarter was a solid start to the year as we continue to execute with focus and discipline against the constructive and improving semiconductor industry environment. We are delivering on our commitments. Revenue increased 5%, slightly above the midpoint of our range, while most other metrics, including adjusted gross margin, EBITDA margin and non-GAAP EPS all exceeded our guidance range. I'm encouraged by these results, and we remain focused on the significant opportunities ahead to fully capitalize on the organization's long-term growth and earnings potential.

As I mentioned, total revenue increased 5% in the first quarter as compared to the prior year, driven by a 7% increase in our APS segment and a 3% improvement in MS. Our unit-driven revenue, which is correlated to MSI, increased approximately 7% year-over-year, driven by growth in liquid filtration, advanced deposition and selective etch, all of which are critical product lines for our customers' new technology nodes. We're pleased to see the continued growth in liquid filtration, which posted its third consecutive record quarter.

CapEx-driven revenue decreased modestly year-over-year in the first quarter, mostly driven by accelerating order patterns in the prior year quarter in response to tariff actions. Given our current bookings patterns, we expect 2026 CapEx revenue to increase throughout the remainder of the year and contribute more meaningfully to our overall growth profile, driven by strong WFE growth and improving fab construction trends, which support not only the latter half of 2026, but also growth expectations in 2027 and beyond.

Our overall results reflect the improving demand landscape across our end markets and regions. This includes double-digit Q1 growth in Taiwan and broader Asia, supported by strong plan of record positions as well as improving demand within advanced logic and memory, driven in part by AI-enabled applications.

Turning to profitability. Gross margins improved in the first quarter of 2026. The key drivers to the strength in margins on both a year-over-year and sequential basis were productivity and efficiency actions across our manufacturing network and supply chain, favorability from the useful life accounting change in the first quarter and product mix. Jeff will provide more details on this later, but we are pleased with the structural improvement in margins and expect to build on this progress in the future.

Additionally, we are continuing our efforts to optimize our manufacturing network. We closed another subscale facility during the quarter in Chandler, Arizona, further advancing our operational initiatives. These actions represent an important proof point in our ongoing efforts to drive scale, optimize our footprint, improve efficiency and better position the business for growth and improved operating leverage as volumes increase.

Free cash flow was also a highlight for the quarter. We delivered $144 million of free cash flow, approximately 18% of sales, despite headwinds from normal working capital seasonality. Our strong free cash flow enabled us to accelerate our deleveraging as we repaid approximately $50 million of our term loan in the quarter. We believe this trend will continue, and now expect to reduce net leverage to approximately 3x by the end of 2026.

Turning our commentary to the semiconductor market. We now expect mid- to high single-digit industry MSI growth for the remainder of 2026, which correlates to approximately 75% of our business. This contemplates an improved DRAM outlook, a similar unit outlook compared to last quarter in advanced logic and NAND, and a continued mixed outlook within mainstream logic. And the outlook for fab spending is also improving, which correlates to the remaining 25% of our business, both fab construction and WFE.

Let me now address the end markets. Advanced logic, which represents approximately 40% of our total revenue, remains well positioned for strong growth in 2026, primarily driven by accelerating demand for leading edge compute. Utilization rates at the most advanced nodes are already operating near effective capacity, and the industry is responding with aggressive capacity investments to support the demand for next-generation nodes. Additionally, as 2 nanometer technology enters a more meaningful production ramp this year, we expect strong growth in 2 nanometer wafer output. Process complexity meaningfully increases with sub-5 nanometer nodes, driving higher Entegris content per wafer and aligning with our strong positions of record.

The memory market, which represents approximately 30% of our revenue, is also structurally strong, underpinned by AI workloads and technology road maps that are reshaping DRAM and NAND architectures. In DRAM, demand continues to accelerate, driven by increased AI consumption. Additionally, and as announced, we expect DRAM capital investments to continue at pace, supporting accelerated DRAM MSI growth beyond 2026.

NAND demand and MSI are also expected to increase in 2026, though it remains more nuanced than DRAM. This view is supported by both leading-edge technology transitions and AI-driven storage requirements. The key short-term growth driver in NAND for Entegris will be layer scaling and the resulting incremental Entegris content, with wafer start activity expected to improve in the latter half of 2026 and into 2027. Vertical scaling materially increases process complexity, elevating the importance of yield, precision manufacturing and advanced process steps and materials. These technology shifts are expected to result in double-digit increases in content per wafer for Entegris.

And lastly, mainstream logic. The recovery and outlook in this end market, which represents approximately 1/3 of our business, remains mixed. We continue to expect tempered MSI growth in mainstream logic through 2026, improving thereafter as new capacity additions, specifically in memory, begin to ease near-term supply concerns, especially with respect to price-sensitive consumer products.

As it relates to CapEx, we are incrementally more positive on the portion of our business related to industry CapEx. The return to growth in fab spending is materializing. This is driven by selective but substantial global capacity additions and pull forwards, primarily in leading-edge logic and memory. Additionally, forecast for WFE spending remains strong as these projects advance. Entegris is well positioned to deliver value for our customers and to capture the multiyear growth opportunities we expect will emerge as we progress through 2026 and into 2027.

To summarize, there are several industry and operational tailwinds fueling Entegris' growth. The industry outlook remains constructive. Semiconductor fundamentals are favorable and support growth in 2026 and beyond. This is driven by advanced logic and DRAM with a more stable near-term outlook for NAND and mainstream logic. Stronger order patterns and increasing backlog provide increased visibility and confidence across our unit and CapEx-driven businesses.

Next, technology transitions will continue to drive upside for Entegris. Materials intensity and process complexity continue to increase. Beyond node transitions, we differentiate by innovating alongside our customers to advance their technology road maps, which is where Entegris creates the most value. And we are driving a stronger operational focus. We are executing with discipline to improve our operational performance, accelerate growth and strengthen our financial profile.

Finally, I want to recognize our employees for their focus, discipline and execution. Their dedication enables all of us to deliver upon our commitments.

Before turning the call over to Jeff, I'd like to highlight that following a rigorous search process, Sukhi Nagesh has been appointed as our new Chief Financial Officer, effective May 18. Welcome to the team, Sukhi. His engineering background, significant semiconductor industry experience, deep financial expertise and strong operational discipline make him the ideal CFO for Entegris. Having previously worked with Sukhi, I am confident that his leadership will be instrumental as we continue to execute our strategy to unlock Entegris' full potential.

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

Thanks, Dave. Good morning. Q1 sales were $812 million, an increase of 5% year-over-year and above the midpoint of our guidance range. Gross margin on a GAAP and non-GAAP basis was 46.9%, above the high end of our guidance range. These results included approximately 50 basis points of onetime items, which we do not expect to recur at similar levels in subsequent quarters. The sequential improvement in Q1 was driven by productivity and execution across our network, including more consistent performance and ongoing cost controls, favorable product mix and favorability from the useful life accounting change in the first quarter, which was in line with prior guidance.

Operating expenses on a GAAP basis were $239 million in Q1 and were $189 million on a non-GAAP basis. Adjusted EBITDA in Q1 was $226 million or 27.8% of revenue, also above our guidance range. The GAAP tax rate in Q1 was 1% and the non-GAAP tax rate was 8%, which includes an unforecasted release of a tax reserve. GAAP diluted EPS was $0.60 per share in the first quarter and non-GAAP EPS was $0.86 per share, which exceeded our guidance range.

Switching to our segments. Material Solutions delivered Q1 sales of $351 million, up approximately 3% year-over-year. Year-over-year growth was led by double-digit increases in advanced deposition materials and selective etch chemistries, along with continued strength in CMP consumables, underscoring the durability of demand for key technologies. Adjusted operating margin was 22%, in line with the prior year period, and increased by approximately 100 basis points sequentially, reflecting improved performance across the manufacturing network.

Advanced Purity Solutions delivered Q1 sales of $464 million, representing approximately 7% year-over-year growth. Results were driven by continued strong demand across the portfolio, including the third consecutive record quarter in liquid filtration, a 3-year revenue high in FOUPs and growth in gas filtration. Adjusted operating margin was 29.1% for the quarter, expanding both year-over-year and sequentially, reflecting strong operational execution and productivity, favorable product mix and the majority of the favorability from the useful life change.

Switching to cash flow. Free cash flow in the first quarter was strong at $144 million, representing a free cash flow margin of 18%, a continuation of the positive trend from the second half of 2025. The increase in free cash flow compared to the prior year was driven by 3 factors: the improvement in earnings, an increase in cash from operations, primarily due to working capital discipline, and lower CapEx in the period. CapEx is expected to increase as the year progresses, but will remain meaningfully below 2025 levels. We continue to expect strong free cash flow generation in 2026.

Turning to our capital structure. During the first quarter, we reduced our term loan by $50 million, building on the $300 million reduction in 2025. We currently have $400 million remaining on our term loan, which is the only variable rate debt in our capital structure. At quarter end, our net debt was $3.3 billion and net leverage was 3.6x. As Dave articulated, we expect to improve our net leverage ratio to approximately 3x by the end of 2026, underscoring our commitment to deleveraging.

Moving on to the second quarter outlook. We expect 2Q sales to range from $815 million to $845 million, a year-over-year increase of approximately 5% at the midpoint. Gross margin is expected to be between 46.25% and 47.25%, both on a GAAP and non-GAAP basis, a modest improvement at the midpoint from the underlying gross margin level achieved in Q1, but more than 200 basis points of improvement year-over-year.

We expect GAAP operating expenses of approximately $241 million and non-GAAP operating expenses of approximately $194 million, which reflects higher variable comp relative to 2025 and other intentional investments to support the expected growth across our portfolio. EBITDA margin of 27.5% at the midpoint, driven by incremental improvements in gross margins. Net interest expense of approximately $46 million, which accounts for debt paydown to date.

We expect our non-GAAP tax rate to return to a more normalized level of approximately 15% in 2Q. We expect GAAP EPS between $0.53 and $0.61 per share and non-GAAP EPS between $0.76 and $0.84 per share. And we expect depreciation to remain largely stable for the balance of 2026 at approximately $35 million per quarter.

Looking ahead to our third quarter revenue expectations. Historical industry seasonality supports a sequential improvement in the third quarter. With our current visibility, which we'll refine on our second quarter call, we expect revenue to grow by approximately 5% from the midpoint of the second quarter's guidance range.

Finally, I'd like to update a few modeling items for the full year of 2026. We expect net interest expense to be slightly below $190 million, the non-GAAP tax rate to be approximately 15%, diluted share count of approximately 154 million for 2Q and for the full year, CapEx of $250 million, and depreciation of approximately $140 million.

Lastly, we have set a date for our Investor Day in New York City in early November 2026, and will share the save-the-date information soon.

With that, operator, let's open the line for questions.

[Operator Instructions] Our first question will come from Melissa Weathers with Deutsche Bank.

Looking forward to working with Sukhi in the coming months. So I guess for my first question -- thank you for all the color that you gave in the prepared remarks on the market environment that you're seeing. I guess, could you flesh out a little bit more what you're seeing -- it's pretty obvious, AI is very strong. But I think on the consumer electronics side, the demand is -- the jury is still out on where fab utilizations are shaping out for those [indiscernible] products. So is there any more color you can provide on those non-AI markets, would be really helpful.

Sure. Melissa, good to speak to you again. Look, we view the mainstream market as mixed, with memory availability and pricing impacting price-sensitive computer products. And then we view that as being offset, however, by power management, data center-related strength and then other ancillary AI-related strength. So on the one hand, you've got potentially some pressure on the consumer products due to the availability and pricing of memory. But yet on the other hand, you have some strengths still associated in mainstream with kind of the broader build-out of AI.

So we kind of view that as a put and take. We view capacity utilization right now in mainstream as being somewhere between 75% and 80%. There have been some foundries that have reported that have broken that 80% barrier for the first time in several years since 2022 peak. So we view that as positive. We do think that, that market is improving, but we're looking at it right now with the current view of being mixed.

Did you have a follow-up, Melissa?

Yes, I did. On the CapEx side, I think the numbers we're hearing from WFE companies, and you can see all the fab announcements coming on. It seems like we're going to have a pretty historic fab build-out cycle coming. So any more color on how we should think about the CapEx portion of your business, whether it's groups or the subfab system than you guys do. I think presenting that ahead of these things have buildouts, would be really helpful.

Sure. Let me give you a quick refresher on our CapEx portion of our business. So as a reminder, about 25% of our revenue is CapEx related. And of that 25%, about 1/3 is WFE and about 2/3 is fab construction. So when you think about Entegris, we typically benefit from kind of 3 cycles of demand when the market enters an up cycle and starts building out new fabs. So fab construction-related product lines increased first. Then you typically see revenue approximately 12 months, maybe 9 to 12 months after groundbreaking, that tends to be centered more towards gas purification and fluid management products in our portfolio.

Then WFE related product lines and initial filtration during tool qualification start to ramp up. That typically happens somewhere between, call it, 12 and 18 months after groundbreaking. You'll start to see product lines like gas filtration, AMC, LMC bulk filtration start to increase for us. And then finally, you'll start to see the unit-driven product lines, you'll see that demand start to increase, and that's kind of 24 months. So after the fab construction piece, after the tool placement and qualification piece, then you start to get kind of the unit-driven business coming in on the tail end, somewhere around 2 years after groundbreaking. So those are kind of the 3 waves. 75% of our business is unit driven, 25% of our business, CapEx driven.

And then from an end market perspective, we would characterize memory probably being in wave 1 of this cycle. And I'm really referring more to DRAM right now. The NAND, the NAND has not announced a lot of incremental fabs or incremental capacity builds at this stage. They've been a bit more focused on driving incremental layers. We're a bit density. So memory though, I would say, is kind of in the wave 1 of this phase really with DRAM at the forefront. And then advanced logic is going through rolling portions of this phase. So probably in the wave 2 and wave 3 portion, but obviously, with some new fabs that have been announced.

Our next question will come from Elizabeth Sun with Citi.

I guess my first question is on the gross margin side. You -- your Q1 gross margin had a nice improvement quarter-over-quarter and also above your guidance and in Q2, improved a little bit, I guess, more on volume. But I guess, going forward, looking into the second half and maybe in '27, how should we think about gross margin path? Are you going to continue to rationalize some factories and improve [indiscernible] efficiency?

Thank you for the question, Elizabeth. I can't tell you how pleased it actually makes me to field some questions about gross margin, particularly because we believe that we're in a period of sustained structural gross margin expansion. And so as we think about gross margin and what we're trying to drive, as I've mentioned previously, we're simplifying and refining our manufacturing network. We're relentlessly driving higher productivity, higher fixed cost absorption, better yields. There is a tremendous amount of work ahead of us, and it will be lumpy, but we are focused on delivering our full gross margin potential, which we think is significantly higher than where we are today.

So getting directly to your question on Q1 gross margin. First off, our 46.9% that we posted on a non-GAAP and GAAP basis, we did benefit from about 50 bps of onetime items in the first quarter. So if you normalize for that, that would put first quarter at about 46.4%. That's about 240 bps improvement sequentially. Bridging you from fourth quarter, about 100 bps of that 240 bps improvement was related to the useful life change that we made at the beginning of this year, very much in line with what we guided at the beginning of the quarter and as highlighted in our 10-Q. Productivity and other specific efficiency initiatives, including improved plant performance, comprised the remaining 140 bps. So that kind of bridges you from 44% where we exited fourth quarter of '25 to where we delivered first quarter of '26.

And then kind of bridging you for second quarter as well. Again, I'll go back to the fourth quarter simply because that's kind of a fully loaded quarter with respect to KSP as well as Rockrimmon, 2 of our newer facilities. At midpoint for Q2, we guided gross margin at 46.75%. That's about a 275 bps improvement from fourth quarter, which again was 44%. We're expecting about 150 bps to be related to the useful life change, and about 125 bps, driven by improvement in our manufacturing network as well as ongoing productivity and efficiency actions, including the closure of the 2 facilities over the last 2 quarters.

Also included in this guidance, I did want to highlight -- included in this guidance is incremental production staffing and related project costs to enable incremental capacity in the future quarters of 2026 as well as into 2027. So embedded in our second quarter guide are some incremental costs that you have to incur ahead to be able to unlock and enable kind of more capacity in the third quarter, fourth quarter and then the first half of 2027 as well. So we're quite pleased with our gross margin trajectory.

And did you have another question, Elizabeth?

Yes. I guess the next one is on the -- congrats on the CFO appointment. I happen to know this, Sukhi has a lot of experience in M&A and corporate development. So I was just wondering, does this signal you guys are ready to do more M&As once your net leverage is below like 3x, as your -- talk about your target?

It's probably -- one, we are incredibly happy to announce Sukhi. I'm looking forward to getting him on board. I wish he could have started today, actually, but he will be joining us in mid-May, and I can't wait to work with Sukhi again.

Just to kind of recap a little bit about Sukhi, I think many of you probably know him, but to kind of recap Sukhi's background, he started in semiconductors in the mid-90s on the wafer fab equipment side. So we actually started in semis at a similar period in time. He actually started as an engineer, much like myself in semiconductors, he started as an engineer. He actually has a masters in engineering. Unfortunately, it's not in chemical engineering like me, but he does have a strong mechanical engineering degree as a background, and he got to kind of cut his teeth on the WFE side of the business earlier in his career.

You followed that up with an MBA, some sell-side analyst experience, a lot of corporate experience, investor relations, corporate development, corporate strategy. He was an interim CFO. And then finally, I got a chance to work with Sukhi at GlobalFoundries. He was there when I joined the company, and he did a phenomenal job of really leading that IPO. So for all those reasons, after a very extensive process, we had a chance to sit down with Sukhi and convince him to join the team of athletes that we're assembling here at Entegris, and couldn't be happier to have him on board.

Specific to your question on corporate strategy or corporate development. Right now, we're focused on delivering our leverage reduction, our deleveraging plan. And initially, this year, we told you that we thought we would be under 3.5x of net leverage. We're already at 3.6x of net leverage, and we updated you that we thought we would be closer to 3x of net leverage by the end of the year. Very happy with the profitability that we're driving. Very happy with the free cash flow that we're driving. And so as we progress through the year, while we pay off our term loan, which is something that we're planning this year in 2026 now, we feel like with that as well as with increased profitability, we'll be well positioned in 2027 to at least start to consider other alternatives, whether it's shareholder return or other opportunities in the market.

Our next question will come from Timothy Arcuri with UBS.

Dave, can you talk about just some of the puts and takes on gross margin and how to think about incremental margins from here? I know Taiwan has been sort of a 100 basis point headwind. Is that still the case? And when does that go away? And then can you talk about Colorado? I think that was only going to go away next year. So can you sort of walk through how do you sort of roll off?

Sure. So without bridging you again, given the details we've provided, I think the best way to think about gross margin is that as we continue to grow volume from here, we should continue to get gross margin improvement from here. And so that will be both in fixed cost absorption as well as incremental efficiencies that we can drive through our manufacturing network.

Now given the strength in order book that we started seeing in the middle of first quarter, we are still looking to optimize our manufacturing network, but we're balancing that rate and pace with respect to make sure that we can still deliver the demand in what looks like a very constructive semiconductor backdrop. So we're taking a bit probably a more measured approach to that as we kind of continue through this year to make sure that we can satisfy our customers with the lead times that they expect and deserve.

Specific to KSP, KSP is dilutive to our P&L today, as you know, and as you articulated. We think that by the end of this year, with the ramp that's ongoing, which it's quite a good trajectory, with respect to where we were a couple of quarters ago to where we are now. But it is still a work in process. We will have that facility by the time we get to the end of the year, probably breaking even on a P&L basis, plus/minus. And then we'll start to potentially move it into a less dilutive state, will probably still be dilutive in '27, but less dilutive, significantly less dilutive once we're kind of exiting fourth quarter '26 run rate into '27.

Colorado this year is all qualification. And so this year is really -- last year was facilitizing, qualifying the equipment and opening the facility, staffing the facility. This year is further staffing the facility and qualifying products with customers. We're expecting very little revenue out of Colorado Rockrimmon this year, with the hope of ramping Colorado in early 2027. So for that reason, both facilities will be dilutive to us in '26, KSP becoming less so towards the end of the quarter and then improving -- or towards the end of the year, I should say, and then improving in '27; Colorado dilutive -- fully dilutive in '26 and then starting to ramp revenue in '27.

Did you have a follow-up, Tim?

I did, Dave. Yes. So can you talk about China and just what's going on in China? Are you seeing any more competition there? We're hearing about some folks trying to do CNP there and becoming a little more -- becoming a little more of a competition for you. So can you talk about that?

Sure. I'll actually touch on a couple of regions. Since I know the 10-Q is not out yet. It will be filed later today, where you're going to see the full regional breakdown. I'll just give you a little swing around Asia. Strong growth from Taiwan, up 18% on a year-over-year basis in first quarter. Broader Asia, in general, so including all of Asia, up double digits, slightly more than 10% on a year-over-year basis in first quarter and then migrating specifically into China. China modestly down in the first quarter.

So obviously, it does remain a key long-term market for us. But when you look at the first quarter performance, that modest decline was largely driven by some of the CapEx-related businesses that were down double digits, largely reflecting some dislocated order patterns that were in the first half of last year related to tariffs, as Jeff mentioned in his script. And so if you were to exclude those, we feel like it would have been a bit more of a normal quarter in China, but the first half, we do expect to be kind of impacted by some of those order patterns that were pull-ins for the first half of last year related to tariffs.

We feel like we have a strong competitive position in our franchise product lines in China: filtration, food, slurries. Yield and performance matter in China, the same way it does in the rest of the world. At this stage, we view China largely as derisked, and we think we're going to have a solid second half, and we think we're going to have a solid 2026 in China.

Our next question will come from Bhavesh Lodaya with BMO.

Hi, Dave, and welcome Sukhi. Looking forward to our discussions. Following up on your CapEx -- WFE CapEx side of the business day, as we see higher volumes start moving through your system, I would presume it comes with pretty strong incremental margins, perhaps better than your company average. Maybe if you could provide some color on where margins stand in that business today versus historical peaks? And how should we think about that side as volumes coming in?

Sure. Look, let me start with utilization. We articulated in last quarter that we had about $1 billion of incremental upside that we could deliver from our manufacturing network. Now obviously, you have to staff for it. You have to position inventory for it. But that's kind of the physical capacity that we have. And so whether it's unit-driven volume or CapEx-driven volume, incremental volume is tremendously helpful from a fixed cost absorption perspective when you're sitting at the type of utilization rates that we're setting out today.

So without getting kind of too far into the details of unit-driven CapEx, our unit-driven margin versus CapEx-driven margin, incremental volume does help us in a pretty meaningful way with respect to fixed cost absorption as it drives our plant utilization higher. And we do expect our plant utilization to grow higher as we progress through the year in the absence -- even in the absence of any other specific initiatives that we have. So from that perspective, we're very much pleased with what kind of the CapEx order book looks like today. We have been booked kind of through the latter half of 2026, if not into '27 on some of these CapEx items. And we do expect gross margin to grow modestly as we deliver that fixed cost absorption with incremental volume.

Did you have a follow-up, Bhavesh?

Yes, and a different one. So there's been a meaningful amount of inflation in terms of polymers and chemical feedstocks. Are you seeing any challenges in procurement or pricing for your raw materials? And then do your contracts with your customers building just a simple pass-through of these costs? Or is there a lag as you price it through to your customers?

What we have seen, some modest inflation. Actually, let me start with the contracts. We do have, for some key suppliers, we do have some contractual terms with respect to price increases as well as our long-term agreements with them to take a certain amount of volumes. So there are key suppliers to us that have relatively fixed contracts, both from a pricing perspective as well as a volume perspective that we have to abide by and as do they.

For the vast majority of our supply chain, however, we have agreements, but then we will do certain annual negotiations. We feel like those annual negotiations were pretty productive for us. We feel like we're in a good spot, cost-wise from an inflationary perspective, with perhaps one exception, and I'll just -- I'll touch briefly on it.

The Iran Middle East conflict. As you know, it's a fluid situation, one that I'm sure everyone in the industry, including yourselves, are monitoring. It's probably a bit too early to quantify the full cost impact there, but we have seen some early cost pressure on raw materials related to some of the availability coming out of the Middle East. And specifically, that's in the areas of some of the noble gases as well as some of the resins.

It looks like right now, at least our position on this right now is that we think it could be temporary. And so we just absorbed those costs. To the extent that this cost pressure kind of persists, either in logistics cost or raw feedstock cost for us, then we would evaluate increasing pricing in the future. But at this point in time, we view the inflationary pressure as -- largely as expected. Some unexpected that I just mentioned related to the conflict in the Middle East, absorbed in our P&L for now and we'll reserve the ride in the future if it becomes too big of a burden to go back and kind of renegotiate some of the pricing with our customers. So from kind of -- as we sit today, I would say, steady as she goes to continue to be reviewed as we progress through 2026. Thanks, Bhavesh.

Our next question will come from Jim Schneider with Goldman Sachs.

I was wondering if, David, if you could maybe kind of comment on what you think has changed the most in terms of the wafer start outlook for the year? It sounds like that is mainly DRAM, either increasing utilization rates or pull-ins in terms of capacity. But I was wondering if you could give any color on that? And then maybe if you could explicitly address the analog sector, where it seems like we have the stand to improve the most from a utilization perspective this year.

Sure. Thanks, Jim. So what's changed the most from when we spoke to you in February until today, I think in -- at the beginning of February, the forecast for the industry was that fab construction would be up low single digits. And I think when you look at fab construction today, the forecast for the industry is high single digits. So that's a pretty meaningful change.

It doesn't mean that we'll get necessarily that revenue in period in '26. As I mentioned earlier in the call, from groundbreaking to kind of first revenue for us is around 12 months. But that's a big change. Fab construction going from kind of low single digits, essentially flat to high single digits, I think that kind of speaks to the state of the industry, the current utilization, particularly for advanced logic and memory, and I think that bodes well for kind of the setup for 2027. So I think that was a meaningful change, not a big change for us, again, in period for '26, but I think the foreshadowing for '27 and the setup is quite good.

MSI, we were originally forecasting that MSI would be low to mid-single digits. We did update the forecast for MSI to be kind of mid- to high single digits. So I would say modest change there on units. And I would say that was a little bit of a blend between advanced logic, DRAM as well as some incremental NAND, and then I would say we're still kind of expecting flat from our expectation in February with respect to -- with respect to mainstream. So I think those are kind of like the big puts and takes between our February call and our market commentary in February and where we sit today in April.

To get to the second question that you had, which was really around mainstream. And mainstream, I think if you stood back and looked at it objectively, I think you'd say that the first quarter has probably been a little bit better than we originally expected. So I think from that perspective, there were, again, some of our customers that have recently released, not all of them have, but some of them that have released have kind of talked about improving inventory in the channel. They've talked about utilizations.

If they're a manufacturer that have broken kind of the 80% level, which for many of them have not been breached since the peak in '22. And then all of them, I think, have kind of highlighted memory availability. So strength in kind of AI-related and data center-related products, but memory availability potentially being a concern. So I think we view that market, as I mentioned earlier, is kind of mixed. We've kind of included a mixed view. Again, this is 30% of our revenue. We've included a mixed view in our guidance for '26 as well as kind of an initial flash that we gave you for third quarter of '26 as well.

Our next question will come from Charles Shi with Needham.

I'll start with the first question around your exposure in advanced packaging. We know this is one of the growth areas for Materials and probably want the variable between you and your closest peer in terms of some of the near-term performance. We know you probably were going to talk a little bit more about that at the Investor Day, but Investor Day probably still 6 months out. So we still would love to hear some thoughts, early thoughts, any new actions undertaking right now at Entegris? We know you talked about the thermal material, you're talking about some of the carrier stuff. Is there anything more than that right now in your thinking that Entegris can get a little bit more exposure in advanced packaging? For one, we do think that CMP seems to be a very important area, especially with the adoption of a more hybrid funding type of advanced packaging and you do have good amount of a CMP slurry path business, but I want to get some thoughts there first.

Thanks for your question, Charles. And look, we agree with you, we think the advanced packaging market is an attractive market. Unfortunately, our exposure to advanced packaging right now is limited due to just the prior investments that we didn't make necessarily in advanced packaging. That stated, we do have some products that have performed well in this space and that we did. We were able to launch some more minor, I would say, minor spends of products to be able to address this market. So specifically advanced flow control for thick resist, delivery solutions for copper plating and photoresist CMP, as you mentioned, for high-bandwidth memory and TSVs in particular, and then, of course, the carrier offering. So we do have a portfolio of products that we have been able to penetrate the advanced packaging market with.

Our current revenue exceeds $100 million a year run rate. So we're excited about some of the traction that we're getting in this market for the areas where we've been able to kind of make investment and bring products to market. We are excited about some of the products that we have in the pipeline. That's really for the future. However, it's not for today, it's not necessarily for 2026 revenue. The 2026 revenue product, so the areas that I highlighted earlier. But we will have more details for you at Investor Day in November, recognizing the nature of the question that November is still about 6 months away. So -- but that's what I can give you today. And we're excited about the $100 million plus that we're driving from the business.

Did you have a follow-up, Charles?

Yes. Dave, since your 10-K came out intra-quarter over the last couple of months, we looked at some of the customer-specific financials. So we did notice that the largest foundry, which is the #1 customer for you, the revenue from that particular customer last year, I would call probably flat to modestly up, and there was a little bit maybe trailing what I consider as their own growth. Was wondering if you can give us some stuff? What happened last year? Why the growth wasn't keeping up very well with the leading foundry? And any -- about this year, are you able to catch up to their growth? And obviously, we heard you talking about 2 nanometer production ramp that is actually happening later this year, but I want to get some thoughts around that.

Sure. Speaking first to last year, to 2025, there is a pretty significant build-out in '24 that from a CapEx perspective, was meaningful, and that puts some pressure on year-over-year comps. We actually felt pretty good about the unit volume for 2025. But obviously, we had some year-over-year dynamics in '25 versus '24 from a CapEx perspective.

Early results here in 2026, which we'll get in our 10-Q later today. And while I won't talk about specific customers, we can certainly talk about regions. Taiwan was up 18% on a year-over-year basis in the first quarter. A lot of strength across the portfolio there, strength that we're anticipating will continue. So good results from Taiwan, again, up 18% year-over-year in Q1.

And really some good results across -- broadly across Asia. Asia as a whole, was up a little north of 10% on a year-over-year basis. Obviously, that includes Taiwan that was up 18%. It also includes China that was down modestly. So the other regions in Asia performed well as well. And as you know, we have key customers in Korea, we have key customers in Singapore, we have key customers in Japan. So good to see that kind of broad region performed well as well as good to see Taiwan perform well.

Our next question comes from John Roberts with Mizuho.

Welcome, Sukhi. Back to China, are you through with your requalification of sourcing into China? And I think you're actually going to rationalize some products just not requalify, and maybe, is that any headwind to the China sales?

Yes. China, we're -- I think in Q1, I think about 85% of our revenue for China, it was in that ZIP code, was from in region for China. That's about where we exited in terms of regional qualification in 2025. We'll probably pick up another 5% of the product portfolio that we sell there in '26. So we'll probably take that 85% number up to 90% by the end of this year. I don't anticipate that we'll ever get to 100%. I think there'll be some products that just given the volume of sales, it won't justify the expense of relocating their production route. But I do think that we'll go from kind of 85% where we are today to probably more than 90%, but we do expect to get to 90% throughout the course of '26 and then above 90%, we'll work on in '27, just with this kind of upper limit of it, it will probably never get to 100%. So there will always be some amount of products that will be impacted either geopolitically or by tariffs.

Did you have a follow-up, John?

Yes, in Materials Solutions, so are the constraints in the memory market driving any product shifts within the Materials Solutions segment?

Not really product shifts. I think -- if you look at memory total, sorry, let me -- maybe it's best to break it down and be more specific. NAND, there are some shifts in the market with NAND. NAND is very much focused on driving bit density, and bit density is driven by layer count. And as layer count moves from low 200s to 300 or 300-plus layers, it does introduce new materials, for example, moly, which the company has spoken about.

So we do like that trend. Incremental bit density, while it does consume capacity, so you don't get more wafers, you don't get more MSI, but it does consume process steps and capacity. And we feel like that's where the focus on NAND is right now is on driving bit density at least in the first half with potentially incremental wafer starts in the second half. Incremental bit density drives incremental materials for Entegris, particularly in areas like moly and selective etch. And so that's a trend that we would like to see continue. And we'd also like to see them continue to fully utilize those fabs to 100% capacity. So both drive bit density and drive more MSI, but I think first half is more of a bit density story.

For DRAM, DRAM is operating really near capacity at this stage. So even with being fully utilized or near full utilization and even with potentially some technology changes in DRAM, there's not a significant change in the materials there. I think the most significant change was just simply the HBM wants a lot of DRAM kind of migrated into HBM. That is incremental processing. We do have some slurries and some other products in that incremental advanced packaging process steps or in those advanced packaging process steps. And so that's a trend we'd like to see continue as well.

Our next question comes from Chris Parkinson with Wolfe Research.

This is Harris Fein on for Chris. Just given the geopolitical environment, there are some fears about energy availability. You mentioned Noble Gas has some key inputs like helium for fabs located in Asia. Just as you run the business and you have conversations with your customers, how would you characterize the degree of concern around that?

We haven't -- there haven't been kind of semiconductor specific concerns around energy. I think in general, there's concerns around just energy consumption and availability, especially as you think about data centers tapping big parts of the grid. But we haven't really seen anything specific to semiconductors or semiconductor fabs. Obviously, it's a key consideration when you think about building a fab, but most of those fabs secure that energy in advance for -- usually for some pretty long periods of time.

Did you have a follow-up, Chris?

Yes. The other one. On the third quarter -- on the third quarter directional framework, I think you mentioned historical seasonality supporting a sequential improvement. I just want to clarify, does that third quarter guide contemplate any cyclical recovery on the mainstream logic side? Or is this just contemplating normal seasonality and any cyclical recovery would be upside to what you're communicating?

Yes. Our third quarter guide today, we just tried to give you a little bit more visibility based on what we're seeing kind of in our order book. So third quarter includes a little bit of seasonality. It also includes some of the visibility that we've received in our order book, particularly with respect to CapEx. And so we wanted to give you a flash of what we thought that looks like.

Now that 5% sequential guide from second quarter to third quarter from our second quarter midpoint, that would be about 8% year-over-year growth if you were to do that math and then look at third quarter kind of guide '26 versus third quarter '25 actuals. So we feel like that's a pretty good guide at this stage given where we are in 2026. So we're pretty happy about that, and it's really just including some seasonality, some of the current order book that we currently have visibility to, and it really doesn't include anything -- any meaningful recovery with respect to mainstream. Thanks, Harris.

Our next question will come from Edward Yang with Oppenheimer.

Dave, I appreciate the time and good to see the improvement. First question is on R&D, and that's been ticking down every quarter for the last several quarters now. I'm just wondering what's driving that? And related to your R&D engine, how does the pipeline look for POR wins that you could leverage above and beyond cyclical recovery?

Sure. Thanks, Edward. There's certainly no intention to kind of tick down R&D. Obviously, if revenue is growing kind of faster than we originally expect, then you tend to get this phenomenon where you kind of set a budget for about 10% of revenue to be invested back into R&D., and so you get kind of these, let's call them, period gaps. But we do feel good about roughly this 10% level of revenue being reinvested back into R&D. We feel like that's a pretty good benchmark. Again, plus minus, and it's very different by business and where different businesses are in their growth cycle and maturity cycle as well as R&D intensity cycle. But from that perspective, we feel like our model of roughly 10% of revenue invested in R&D is, for a bunch of reasons, is the right one.

Pipeline for PORs. We actually feel pretty good about both our current plans of record, our current market share as well as the PORs that are currently in our pipeline that we are competing for. So as manufacturing becomes more complex, as you move to higher layer counts and memory, as you move to more advanced packaging for DRAM that requires incremental slurries, incremental pads, incremental filtration. And then, of course, as you move advanced logic from kind of 2 nanometer to sub-2 nanometer, the landscape and the precision required and the contamination and material purity required, those requirements all get orders of magnitude harder. And we feel like that plays very well, both to our development cycle as well as to our current product line. So I feel very good about our innovation engine. It's something that we're looking forward to showcase a little bit at our Investor Day in November. So some more to come. Thanks, Edward.

And this does conclude the Q&A portion of today's call. So I'd like to turn it back over to Jeffrey Schnell for any additional or closing remarks.

Yes. Thanks, everybody, for joining our call today, and we look forward to discussing more with you in the coming quarters.

Thank you, ladies and gentlemen. This concludes today's Entegris' First Quarter 2026 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.

Welcome to the Entegris Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Jeff Schnell, VP of Investor Relations.

Good morning, everyone. Earlier today, we announced the financial results for the fourth quarter of 2025. 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 and 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. On the call today are Dave Reeder, our CEO; and Linda LaGorga, our CFO.

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

Thank you, and good morning. Before we dive into results, I want to take a moment to welcome Jeff to our team. We're excited to have him on board leading our IR efforts as our new Head of Investor Relations. .

Our solid fourth quarter results demonstrate disciplined execution and a consistent focus on delivering on our commitments. Fourth quarter revenue, gross margin, adjusted EBITDA margin and non-GAAP EPS were all at the high end or above our guidance range.

For the full year, total revenue was approximately flat compared to 2024, excluding divestitures. Our unit-driven revenue grew approximately 2% in 2025, in line with wafer starts for the market and was led by CMP consumables liquid filtration and selective etch. Our CapEx-driven revenue declined 7% in 2025, consistent with the decline in industry fab construction CapEx, where we are most highly correlated.

The fab CapEx slowdown was most evident in our FOUP and fluid handling product lines within our APS division. Looking ahead to 2026. The industry backdrop appears more constructive. I'll touch on the semi market in more detail in a bit, but there are a few areas where we expect notable improvement compared to 2025 that should benefit Entegris.

First, we expect to benefit in 2026 from the node transitions in both logic and memory. In logic, increased demand for 2-nanometer devices is expected to meaningfully drive wafer output throughout 2026. In memory, NAND transitions are progressing, migrating from low 250 layers to approximately 300 layers.

Additionally, next-generation DRAM and HBM products are expected to be rolled out this year, and all these transitions create accretive content per wafer opportunities for Entegris.

Next, we expect industry MSI growth to increase in 2026, led by continued strong growth in advanced logic and DRAM, improving demand for NAND and stable demand for mainstream logic.

Finally, we expect industry fab construction spending to grow in 2026, reversing a significant decline in 2025. This is meaningful for Entegris because 2/3 of our CapEx-related revenue is correlated to fab construction. Last quarter, my first as CEO, I shared my initial priorities for Entegris, let me provide an update on those priorities. First is deepening customer intimacy. This includes supporting our customers' technology road maps. Success in this area translates into securing key positions of record PORs in new nodes, which will expand our served available market and increase both revenue and content per wafer.

For logic devices at the most advanced node, we've secured strong POR positions and solid share in key product lines such as CMP consumables, advanced deposition and implant materials, liquid purification and filtration and wafer handling products.

In addition to this, the team is focused on winning incremental share and PORs in subsequent advanced nodes. For advanced memory, we are gaining traction in DRAM and HBM, in particular for products associated with CMP consumables and advanced packaging solutions. And for next-generation NAND devices, we have also achieved strong POR wins with solid share across key NAND specific product lines, including deposition materials, CMP and selective etch applications.

Our second priority is improving utilization by ramping our new facilities in Taiwan and Colorado, while rationalizing our existing manufacturing footprint. Our Taiwan facility continues to ramp production and our Colorado facility is expected to substantially complete key customer product qualifications in 2026. And in the fourth quarter, we exited our Chester, Pennsylvania facility, and we expect to rationalize at least one additional facility in the first half of 2026.

As I discussed last quarter, we have completed the multiyear manufacturing CapEx investment cycle that began in 2022. As a result, we expect 2026 CapEx to decline to $250 million. Longer term, we expect CapEx to return to historical levels of approximately 7% to 8% of sales. The additional manufacturing capacity we've built, combined with our current manufacturing base, enables us to deliver significantly more than $1 billion in incremental revenue with limited further investment. Our third priority is improving free cash flow. Thanks to the team's execution, free cash flow margin, which is free cash flow divided by sales, improved meaningfully, reaching 12.7% in 2025, in line with our target.

Higher operating cash flow in combination with reduced CapEx is expected to increase free cash flow again in 2026. This will support debt reduction and enable us to reduce net leverage to below 3.5x exiting 2026.

Underscoring our commitment, free cash flow is now part of our short-term and long-term incentive plans. Our fourth priority is increasing local-for-local manufacturing, particularly for China. This provides us with critical strategic flexibility and enhanced ability to serve our global customers. We expect approximately 85% of our China revenue in Q1 will be supplied by our Asia facilities with that proportion increasing through 2026.

Turning our thoughts to the semiconductor market. We expect midish single-digit industry MSI where wafer starts growth in 2026. As a reminder, about 75% of our revenue is unit driven and is correlated to MSI.

Looking closer at semi end markets. Advanced Logic is positioned for significant growth again in 2026, driven largely by AI-enabled applications. Fab utilization rates and advanced logic are already near 100%, and our customers are aggressively investing in additional capacity. Beyond the benefits of strong unit growth, as 2-nanometer significantly ramps wafer output this year, this node provides an additional tailwind as it carries both higher content per wafer and strong share for Entegris.

In mainstream logic, feedback suggests inventory levels are now healthy. While we're seeing early signs of improvement and mainstream MSI still remains well below the 2022 peak, the overall end market recovery is slow and mixed. We also note that ongoing memory shortages may weigh on the industry's ability to supply some mainstream end markets.

NAND. NAND continues to benefit from strong AI-driven demand and pricing trends. This is expected to translate into more than 20% bit growth in 2026 driven primarily by the shift to higher layer, higher capacity NAND rather than a significant increase in MSI. While NAND MSI is expected to rise modestly in 2026, we expect to additionally benefit from a double-digit increase in NAND content per wafer as customers move to higher layer count, advanced nodes and introduce new materials such as moly and selective edge. If demand remains robust, flash memory makers will likely need to add significant fab capacity setting the stage for higher NAND MSI growth in 2027.

DRAM is expected to see solid MSI growth in 2026. Pricing trends and underlying demand remained strong in both HBM and DDR5. Tight supply in HBM, DDR5 and in advanced packaging are all expected to drive the need for additional fab capacity heading into 2027.

While 75% of our revenue is related to MSI, 25% is tied to industry CapEx. There are 2 primary drivers of our CapEx revenue. fab construction related spending, which correlates with approximately 2/3 of our CapEx sales and the remaining 1/3 related to WFE. Fab construction CapEx is expected to grow modestly this year after a high single-digit decline last year with a more meaningful acceleration anticipated in 2027 as construction begins on new fabs. Additionally, we expect WFE to deliver strong growth in 2026.

Overall, AI continues to be an important growth driver for the semi market, and we are seeing an increased benefit from this trend. Today, more than 60% of Entegris' revenue comes from advanced logic and advanced memory. AI is, of course, not the majority of these advanced nodes, but it is an important part and the most significant growth driver.

In closing, we ended 2025 with momentum. We are cautiously optimistic about the industry conditions entering 2026. We continue to focus on winning key PORs and new nodes, driving higher Entegris content per wafer and revenue. The growth we expect this year should improve utilization, thus increasing free cash flow and reducing leverage. And as devices become more complex, our expertise in material science and materials purity becomes increasingly critical, helping customers enhance performance and achieve optimal yields.

As a result, we expect to significantly grow our content per wafer and outperform the market, and we will continue to focus on execution and delivering on our commitments. Before handing over to Linda, I wanted to share that given the CFO transition, we are rescheduling our Capital Markets Day from this May to the fall of this year. We'll share more details on this as soon as we can. And finally, I want to thank Linda for her many contributions and lasting impact on Entegris. We wish her all the best in the future.

With that, let me turn the call over to Linda.

Good morning. Q4 sales were $824 million at the high end of guidance, down 3% year-over-year and up 2% sequentially. Gross margin on a GAAP basis was 43.8% and 44% on a non-GAAP basis in the fourth quarter, also at the high end of guidance. The sequential increase in gross margin was primarily driven by increased production volumes across our manufacturing facilities.

Back to the Q4 P&L. Operating expenses on a GAAP basis were $256 million in Q4. Operating expenses on a non-GAAP basis in Q4 were $188 million. Adjusted EBITDA in Q4 was 27.7% of revenue above our guidance. The GAAP tax rate in Q4 was 10%, and the non-GAAP tax rate was 15.4%. GAAP diluted EPS was $0.32 per share in the fourth quarter. Non-GAAP EPS was $0.70 per share above our guidance.

Sales for Materials Solutions in Q4 were $362 million. Sales were flat year-over-year and up 4% sequentially. Sequential growth was driven primarily by advanced deposition materials, supported by demand for moly deposition within NAND. Adjusted operating margin for MS was 20.9% for the quarter. The year-on-year decline in margin was driven by slightly lower production volumes and strategic investments. The strong sequential increase in margin was driven by increased production volumes and product mix. Sales for Advanced Purity Solutions in Q4 were $465 million, down 5% year-on-year and up 1% sequentially. The year-over-year sales decline was driven by fluid handling and soups partially offset by strong growth in liquid filtration, which had another record quarter. Sequential growth in liquid filtration and gas purification was partially offset by lower food sales.

The adjusted operating margin for APS was 24.8% for the quarter. The year-on-year decline in margin was driven by costs related to the ramp of our Taiwan and Colorado manufacturing sites and lower production volumes. The sequential decrease in margin was primarily driven by unfavorable product mix and timing of operating expenses.

Moving on to cash flow. Full year free cash flow was $404 million, representing a free cash flow margin of 12.7% in 2025, nearly a 300 basis point increase year-over-year. This improvement was driven by our team's disciplined focus on working capital, including accounts receivable and decreased year-on-year inventory growth. CapEx for 2025 was $299 million, approximately 9% of sales. A quick overview of our capital structure, during the fourth quarter, we paid down $150 million of the term loan from cash on hand. And for the full year, we paid down $300 million of the term loan. At quarter end, our gross debt was approximately $3.7 billion, and our net debt was $3.4 billion.

Net leverage ended the year at 3.8x. As Dave said, we are targeting net leverage of below 3.5x by the end of 2026.

Moving on to our Q1 outlook. We expect our Q1 sales to range from $785 million to $825 million, reflecting an increase of approximately 4% to the midpoint year-over-year. Gross margin of 44.5% to 45.5%, both on a GAAP and non-GAAP basis.

We recently completed an assessment of the useful lives of our assets. This gross margin guidance includes the positive impact from the useful life accounting change of approximately 100 basis points in Q1 on gross margin. We expect GAAP operating expenses of approximately $229 million and non-GAAP operating expenses of approximately $181 million.

EBITDA margin to range from 26.5% to 27.5%. Net interest expense of approximately $47 million. We expect our non-GAAP Q1 tax rate to be approximately 15%. We expect GAAP EPS between $0.43 to $0.51 per share, non-GAAP EPS between $0.70 and $0.78 per share. And we expect depreciation of approximately $36 million in Q1. Looking slightly further ahead, based on our current visibility, we expect Q2 sales to increase 1% to 3% sequentially from Q1, in line with normal industry seasonality.

I'd like to provide a few modeling items for the full year of 2026. We expect net interest expense will be approximately $190 million, the non-GAAP tax rate to be approximately 15%. Diluted share count of approximately 152 million shares for Q1 and approximately 153 million shares for the full year, CapEx of $250 million and depreciation of approximately $150 million reflecting the recently completed assessment of the useful lives of our assets.

Before we begin Q&A, I would like to thank the finance team, the leadership team and the Board for their partnership over the past 3 years. I am proud of the work we have done to strengthen the foundation of the business and position the company to capitalize on future opportunities. It's been a privilege to be CFO, and I am confident in Entegris' path forward.

With that, operator, let's open the line for questions.

[Operator Instructions] Our first question is coming from Mike Harrison with Seaport Research Partners.

Best wishes to Linda, and welcome Jeff to the team. Dave, I appreciate you walking through your detailed thoughts there on underlying market growth in 2026. It sounds like if we roll that all together, you're looking at something in the mid-single-digit range for growth overall. But I'm curious, historically, Entegris would talk about growing 3 to 6 percentage points faster than the underlying market. As you look at the opportunities that you're seeing, you mentioned the advanced nodes in 2-nanometer as well as growing content per wafer in NAND. I'm just curious, are you expecting an environment in 2026 where you can get back to growing in that 3% to 6% range faster than underlying markets? .

Mike, good to speak to you again. When we think about 2026, we do think the industry backdrop is a little bit more constructive than it was in 2025. And specifically, if you think about kind of the areas in which we grow revenue, we do about 40% of our revenue is from advanced logic, about 30% from mainstream logic and then the remainder from memory. And so when you look at 2026, it feels like advanced logic is pretty fully utilized as we add capacity there. We get the benefit of both additional growth plus more content Mainstream looks kind of mixed. So we think we're performing on a cylinder for advanced logic. We think mainstream looks mixed but stable. And then we think memory can perform. So think of it as kind of performing on 3 of our 4 cylinders.

The additional piece to then layer on top of it is CapEx, and CapEx was not terribly constructive in '25, but we do think that CapEx could be more constructive in '26, particularly the portion related to fab CapEx. So when you look at that industry backdrop and you think about outperformance, I'll just add a couple of more points to that. One, we typically get the most outperformance when we have node transitions, because that drives additional content per wafer. So that's our -- typically our biggest driver of outperformance. And so while both logic and NAND node transitions look solid, we don't really control the timing and pace of that.

And so -- and then, of course, as I mentioned, the CapEx piece is particularly fab CapEx is relatively volatile. So when we look at '26, we look at our first quarter guide, plus 4% at midpoint, slightly greater than 6% at the high end of our guidance range. And of course, we gave you a little bit of color for Q2. We feel like the setup is constructive. To the extent the node transitions, both logic and memory happen. We feel like we can get back to outperformance and then the CapEx piece looks to be a little bit more second half weighted. So I gave you a lot of details there for content, Mike. But did you have a follow-up?

Yes. That's very helpful. The follow-up is this kind of on the margin trajectory for the year? Your guidance for Q1 calls for a little bit of sequential contraction in EBITDA margin. I assume that's just seasonality, but anything you can share in terms of how we should think about margin trajectory in '26? Presumably, you're getting back to more normal production rates yourselves and seen some benefits from ramping the Taiwan facility. So I appreciate some details there. .

Yes. So thanks, Mike. Thanks for that question. Let me bring it up to gross margin. I know you mentioned EBITDA, but I think it's important to go back to when we think about our gross margin, first, it's really stabilized in the current range. We had mentioned we called a trough at the second half of last year. And you could see based on the Q1 guidance that stabilization. The key as we drive margins, and this will drive through to the bottom into EBITDA is the volume leverage. And so as we said, there's a constructive environment going into this year. As we see more production going through our facilities, that's going to go into our gross margin and see that improvement. That includes ramping Taiwan this year and continuing to ramp. And then as Dave mentioned in his remarks, we did rationalize one facility, and we plan to rationalize another one in this first half of the year. So again, all those dynamics, volume leverage, combined with Taiwan ramping combined with some rationalization is going to help us improve gross margin with that increased production and drive down to EBITDA?

we'll move next to Timothy Arcuri with UBS.

Dave, for the full year, you said CapEx is going to be up modestly. We know WFE is going to be up low to mid-20s, probably even than that. What about MSI for the year? I don't think I heard you give a target for [indiscernible] for the year. .

Tim, MSI, we think is mid-ish-single digits. Still early days, and obviously, we've got Chinese New Year that's happening next week in Q1 versus the end of January. But when you look at MSI, so there's some Q1 dynamics in there. But when you look at MSI overall for the year, our current estimates are kind of mid-ish single digits, agree with your commentary on WFE, that looks like it's going to be strong this year. That's about 1/3 of our CapEx related revenue. And then 2/3 of our CapEx-related revenue is tied to fab construction CapEx. And when you think about that portion, it looks like there's probably not a lot of that in the first half with it picking up perhaps even significantly in the second half and then, of course, setting up well for 2027. Did you have a follow-up, Tim?

I do, Dave. Yes. So if I just add that all together and I run the ratios, you're probably I mean your market is probably up more [indiscernible], probably high single digits at least. So do you think you can outgrow that by a significant margin. I mean a good -- is that a good level to say that you should grow revenue at least high singles, probably even low doubles to get to your outperformance metrics for the year. .

Tim, I think I've given you a lot of the elements here. I think we'll probably stand pat for guiding 1 quarter at a time. We gave you a little visibility with respect to second quarter normally imply kind of sequential growth of 1% to 3% from first quarter based on order patterns, we feel pretty good about that range right now. And so we'll continue to give you more visibility as we see it. I think the wildcard that we kind of see right now is how does that fab CapEx kind of layer in throughout the course of the year? And then how do we kind of participate in that portion of the revenue, that's the piece that we're really watching right now. And it's moved pretty significantly month-to-month. So that's the hesitancy or perhaps the conservatism that you're hearing in my voice. I want to see how that plays out a little bit.

We'll take our next question from Christopher Parkinson with Wolfe Research.

You mentioned last quarter more of a concerted selling effort directed to mainstream customers. And I was wondering if you could give us a quick update on what's underway there.

Thanks, Chris. We look at our customers in quite a lot of detail, particularly kind of our top 50-ish customers. And so when we look at that customer list and we look at mainstream, we then kind of break them down into their corresponding portions of mainstream. And so you get kind of mainstream logic. You've got some mainstream in there that's associated with some specialty manufacturing, for example, silicon carbide as well as some other nodes. And so when we look at that universe, I'll start with kind of the latter silicon carbide was a headwind for us in 2025, I'm talking on a year-over-year basis from '24 to '25. We think that is now stable and perhaps even improving slightly, albeit slowly in '26. So we think the silicon carbide headwind, where we have a very nice solution for the CMP process, we feel like that will not be a headwind for us, at least expectation-wise in 2026. So we think that will be constructive and helpful. And we continue to gain even more share in that process.

When we look at the other mainstream and I'm referring to mainstream logic, mainstream logic has a number of needs across our entire product portfolio. And so our efforts in mainstream logic become more about providing all of those solutions, not just individual product lines to each of those mainstream customers. So when we look across those customers, we're trying to more deeply penetrate their wallet across our complete product portfolio, whereas in some of those mainstream logic customers, we're only selling individual product lines. Did you have a follow-up, Chris? .

Yes. And then sorry, I should have said this is Harris Fein on for Chris. For the second question, I mean, for a while now, there's been a lot of headlines on China competition. I guess, it would be helpful to hear if you're seeing anything in terms of changing behaviors or any sort of step-up in competitive intensity? And if so, where are you seeing it? .

Good question. When we look at the China market, we think the fundamentals of the China market are very similar to the rest of the world. In other words, they care about yield and performance. And so when you think through products in our space that improve yield and performance, you think of the Entegris products that do both. It's, one, continuing to deliver purity both at point of use and a source, and then, of course, having high purity materials that enter the process pure. And so those 2 products, which is really product portfolios that Entegris is built upon, that improves yield and performance. And that's competitive, irrespective of kind of where you are around the world.

Now then when you kind of hone in specifically in China, because they compete fiercely in China, our biggest obstacle in China is being able to guarantee to those customers that we can assure supply. So can we guarantee supply to those customers. And when we can guarantee supply to those customers, we find that they revert back to yield and performance being important.

And so what you saw us do in 2025 was you saw us put a really concentrated effort into qualifying more manufacturing overseas, specifically for the China market as well as the rest of Asia. We got up to about 85% of products, at least in first quarter, about 85% of our revenue for China, we're expecting to supply from region. And so we're able to guarantee that supply. We're going to continue to work on that throughout 2026, probably getting to a number around or even greater than 90%.

And so I think as we continue to be able to qualify more products for Asia manufacturing, we then get to guarantee supply to those customers, then we get to compete in that market like we do around the world. And when we can compete fairly in those markets, we tend to do pretty well.

We'll move next to Charles Shi with Needham.

Dave, good results. I want to ask you about NAND. I think we've spoken about this for a while, NAND sentiment-wise, pricing-wise, business-wise for a customers have inflected. But it doesn't appear that it's inflecting for you yet. Wondering what's the best prediction as of today? When do you think that business is going to pick up. And by the way, I did notice in your prepared remarks, double-digit content gain for this year on the back of pretty flattish or maybe single-digit MSI should do well for the NAND. But I just don't really feel like I see that in your March quarter guide or June quarter guide, is it like more of a second half driver? And why it's so delayed versus our customers?

Charles, thank you for the question. With respect to NAND, we think the underlying demand, like you remains very strong. In fact, you started to see pricing kind of firm for NAND in the early second to mid-second half of 2025. You saw the pricing continue to perform well throughout the latter half then of '25 and then continue to grow through '26. We actually think that increased wafer starts on NAND has actually been very, let's call it, measured. And so we think incremental wafer starts for NAND will remain measured because what we're actually starting to see is we're starting to see some node transitions on NAND, where you get a premium or the NAND producers get a premium pricing for bit density.

And so we're finally starting to see some of those node migrations that we expected on NAND going from kind of, call it, 250-ish layer count to roughly 300-ish layer count. So as you kind of grow that layer count kind of 20% bit density growth on a year-over-year basis. It's a premium product for them. We get benefit from those incremental layers, but it effectively consumes capacity.

And so I think what you're hearing from us is we like the incremental layers, incremental layers brings higher content per wafer for Entegris, but the actual increased wafer starts, we're waiting for the NAND producers to effectively drive those wafer starts. So this is the trade-off and environment right now that when we look at Q1, we think we've got a solid guide for Q1. We've got an indication kind of for second quarter that we feel quite comfortable with. And then we'll leave it for the NAND producers to determine the rate and pace, both of the layer count as well as incremental wafer growth. Did you have a follow-up, Charles?

Dave, yes, I do. The second question, thanks for the China color, the amount of supply supporting the China market. But I wonder if you have a view your China business is going to grow in '26. And if you can, what was the China growth number for 2025?

Sure. So in terms of the China business growth in '26, I'll let Linda in a moment talk about the '25 growth. But the areas that we expect to grow in '26 for China. One, we think some of the CapEx-related areas will grow in 2026, specifically FM and perhaps FOUPs. We expect LMC or liquid filtration to perform in 2026 in the China market as well as some of the CMP products. There's probably a couple of others in there, but we expect the China market to have growth in '26, and we think it's kind of underpinned by the areas that I mentioned. Linda, do you have the China growth number for '25?

Yes. So China has remained '24 and '25, approximately 21% of actual dollars are down slightly. But as we've talked about before, and Dave highlighted some of the reasons why our China customers like our products, we've been able to maintain very solid performance in China.

We'll take our next question from Melissa Weathers with Deutsche Bank.

I wanted to touch on something you flagged in the prepared remarks, the potential impact of memory shortages and pricing on the electronics market and any decreased production we could see from that? So I know you're calling for mid-ish single-digit growth, which mid-ish, that's a new word for me that I learned today, but -- could you help us -- what are you embedding in that outlook with respect to like any demand destruction from the memory shortages?

Yes. I think when we think about our first quarter guide, obviously, we didn't factor anything into the first quarter. We didn't really factor anything into kind of our at least indication for second quarter at this stage. I think really what we were doing was we were just flagging it as potential, we're expecting mainstream to be stable this year, perhaps even slightly improving versus 2025. But a lot of the mainstream logic, a lot of that production is reliant on some form of memory. And so we're really just, at this stage, calling it out as a flag to watch for the second half of 2026. I think that's where the impact would be, if there was any. Did you have a follow-up, Melissa?

Yes, I did. On the capacity shutdowns that you've done in the fourth quarter and that you might do in the first half of this year? I'm sorry if I missed it, but have you given any timing on when we could expect those closures to impact gross margins?

Yes. Let me broaden the question out to gross margin, and then I'll answer your question specifically. In the third quarter, which was my first as CEO, we guided kind of a trough for gross margin between 43% and 44%. Third quarter gross margin was $43.6 million. We were able to increase that to 44% in fourth quarter. In first quarter, on slightly lower volume, we're still guiding you on a normalized basis to kind of 44%. And so we feel like, at this point, incremental volume growth for us will drive incremental gross margin from these levels. So from that perspective, we feel quite good about it.

We were able to rationalize on facility in the fourth quarter of this year -- excuse me, of 2025. As we go forward into 2026, we'll get some modest benefit from that in terms of utilization. When we think about what I mentioned in the script, which was we're expecting to rationalize another facility, in the first half of 2026, then you would expect to get some minor benefit on a go-forward basis through the remainder of '26. And we'll continue to go. We'll continue to both ramp our facilities in Taiwan. We'll qualify our facility in Rock Reman and we'll continue to look at our manufacturing footprint and the rate and pace, at which utilization is improving and make the decisions that you would expect us to make.

So for all those reasons, we feel quite good about the trajectory that we're on, and we feel like the execution is in front of us to perform.

We'll move next to Elizabeth Sun with Citi.

The first one, I guess it's maybe you previously talked about AI is 5% of the wafer starts market, but I believe your content is much higher for AI-related products. So I'm just wondering if you had looked from the perspective like how much is AI as a percentage of total revenue?

What we tried to give you some -- at least some indication and some color in the prepared commentary. We mentioned that about 60% of our revenue in 2025 was driven by advanced nodes, so advanced manufacturing. That's both logic and memory. And then as you think about going forward, AI is a big part of that growth in advanced manufacturing. And for example, advanced logic we designate that as 7 nanometers and below. And then the last kind of 2 generations of memory, the newest 1 plus current manufacturing, that's how we define advanced manufacturing nodes. So from that perspective, it's about 60% of our total revenue as a company. We expect that to grow going forward because we expect both incremental capacity to come online, mostly to satisfy AI. And then, of course, we expect memory to continue to grow as AI drives more growth through memory. Did you have a follow-up, Elizabeth?

Yes, I do. And advanced packaging, I understood this has been a smaller part of your total revenue, but I think I heard in your prepared remarks that you are expecting some wins and you are doing some efforts on HPM side. So I was wondering what's your expectation for advanced packaging revenue this year? .

Yes. Advanced packaging is an area that grew nicely for us in 2025, representing roughly $100 million plus/minus. We expect that to continue to grow nicely in 2026. And this is an area where we've made a little bit more concerted effort to grow across a number of product lines. So those product lines are sampling now, and we have some others that will sample later in the year for the advanced packaging market. So we're not expecting as much benefit in '26 as perhaps we could get in '27 and beyond. But it is a growing part of the market. It is starting to look more and more like some of the more advanced nodes in terms of its complexity and the challenges that our customers face, and it's an area that ultimately will play well with some of our product portfolio. So you're going to see a little bit more of a focused effort from us in the space, and we're cautiously optimistic.

We'll take our next question from Edward Yang with Oppenheimer.

Just wanted to touch again your leverage to memory market trends. Obviously, a lot of excitement there. Can you just first remind us your ballpark total revenue exposure to memory overall, and where it could go in enough cycle? And maybe also clarify the trade-off between when you were talking about later count benefit versus wafer counts, like with CMP, I would think that you'd be relatively indifferent, but perhaps in other parts of the business, you can get more or less revenue. .

Sure. So Memory is about 30% of our total revenue. It's roughly split equally, and I'm standing back in squinting on an approximate basis. So say about half of it is NAND, about half of it is DRAM. As you know, DRAM has performed very well in 2025, very high utilization rates across DRAM, more of DRAM moving from kind of individual sales of DDR5 into HBM. And so as that migration happens, there's some incremental content associated with that, but it's not the same as what you would get, for example, from an incremental wafer.

And so there is incremental content when you go from stand-alone DDR5 to HBM, but there would be more total benefit if you would start and generate more total wafer starts. But the technology capacity for DRAM is pretty fully utilized exiting '25 and we see it remaining that way through 2026. The other half roughly of this 30% of revenue is NAND. NAND is probably around 85% utilization. That's down a bit from where it was in peak in the 2022 type time frame, but what you're seeing in NAND is you're seeing that 15% available capacity, you're starting to see it get absorbed by incremental wafer count -- or excuse me, by incremental layer count.

And so as those incremental layers happen, we're relatively indifferent on whether you're absorbing that capacity on an incremental layer basis or on a wafer basis, I think on a general statement, we would say we would be relatively indifferent I think the reality is we would probably get slightly more incremental benefit from a wafer, from a full wafer start. But we do get benefit from both. Did you have a follow-up, Edward?

Yes, I do. So Dave, you mentioned focusing on winning new PORs. And I was just wondering as your go-to-market approach change there is -- are you cross-selling more intra division between -- and also interdivision between Material Solutions and Advanced Purity Solutions. .

Yes. I think you've seen us really continue a lot of the good sales focus that was in place before I joined where we've kind of continued that momentum since I've joined the company. I think what perhaps we've been able to focus a bit more on now is we have been able to focus a bit more on selling the complete portfolio of products. We've always engaged very well on a technology road map basis. So that's something we don't want to change. We want to continue those best efforts where we're focused on our customers' node transitions and technology road map, many of which are kind of several years out. But then as we do that, we also want to layer that in that road map and that engagement on road map, we want to layer in our other product lines where we bring best-in-class filtration, best-in-class purification, best-in-class wafer handling and fluid management and bring that together with some of these longer technology road maps such as the CMP process, the deposition process, the etch process.

So you've seen us try to make a concerted effort with not only continuing the good engagement on the technology road map, many times of which it's looking at several years, but then also bring more of the other product lines along in that engagement and discussion for today.

We'll move next to Bhavesh Lodaya with BMO.

Congrats on the nice quarter. And certainly all the best to Linda, and welcome Jeff as well. you set a lot of color for the short term. So maybe a longer-term question. If I look at where MSI -- overall MSI stands today, we are still under prior peaks around 13% lower, it seems -- and we don't see a weak go by without news of higher and higher CapEx spend in AI, data centers. If end market growth kind of hangs in there, I'm curious on your view as to how that plays for MSI over the next 3 years -- next 3 to 4 years, as these capacities have brought online?

Thanks, Bhavesh. Well, you're right, it is somewhat of a bifurcated market where we're talking about maybe we need to start new fabs, but yet you're looking at MSI and you're looking at some underutilization in some areas of the market. where you're not fully utilized as of yet. So let me -- maybe the best way to answer this question is to kind of break it down into its constituent parts.

If you think about advanced logic, which we define as 7 nanometers and below, Advanced logic is pretty fully utilized, particularly advanced logic below 5 nanometers. And so you're seeing a lot of incremental capacity and focus on incremental capacity for the most advanced nodes. And that's growing total capacity for the 7-nanometer and below advanced logic category. But it's slow and it takes time to grow 2-nanometer base, and it takes time to then also transition to new nodes, for example, like 1.4 nanometer. But that space is pretty fully utilized on that category, 7 nanometers and below is pretty fully utilized. And so what you need is you need more capacity to grow MSI. DRAM is also very highly utilized.

So if you want to grow a lot of MSI and DRAM, you need incremental capacity. And I think you're starting to see some of the producers of DRAM think through where and how do you add that incremental capacity and over what time frame, and so I think you're seeing the market kind of recognize that DRAM is very tight. There's not a lot of incremental available capacity and how do you best drive incremental capacity. Is it through incremental tools and perhaps efficiencies? Is it through groundbreaking? I think you'll see the market kind of make some moves on this front through 2026.

NAND, there is some available utilization. My best guess is that the utilization that's available for NAND will be consumed by layer count, some combination of layer count and MSI growth, but I think it's more layer count than MSI. I think ultimately, you get some of both. But I would say, at least at this point in time, I think it's more layers with less lesser amounts of incremental wafer growth or MSI growth. And then I think, ultimately, that market perhaps will have to look at adding capacity, but I think that's probably the second half, perhaps even latter part of second half type of decision before we see what's happening there.

And then we're now kind of on to the crux of your question, which is mainstream. Mainstream is the bulk of the logic market in terms of and mainstream has been slow to recover and mixed. The good news is that feedback on mainstream inventory, it looks like inventory levels are relatively healthy, but the rate and pace of growth on the mainstream part or MSI growth on the mainstream part of the market, that's a bit unclear right now. And that is the bulk of MSI for logic. I'm talking total logic. The bulk of the capacity sits in mainstream. And I think that's the part that people are looking at and wondering what's the rate and pace of growth in mainstream, because it's such a big part of logic MSI. Did you have a follow-up, Bhavesh.

Yes. In your equation here, so 1 side of growth comes from utilization, the other side comes from, I would say, content gains are a mix benefit as more layers come in. Where do you put outperformance metrics in this? Do you count the content gains and outperformance? Or would outperformance be over and above these 2 things? .

Yes. We think of outperformance really from a revenue perspective. And so to the extent that you grow layer count, it actually increases content per wafer. And so from that perspective, that incremental content per wafer would show up in revenue and we would count that as outperformance to the market because it would be incremental kind of to what the normal market would see. So that's how we would think about that.

We'll take our next question from John Roberts with Mizuho.

Linda Best wishes, and welcome again, Jeff is also here. Could you talk about the weaker parts of the business. So it looks like, again, FOUPs were probably down, gas filtration was probably down. Is that all related just to the new fab construction activity being down and do they continue down in the first quarter?

Yes. So when you look at 2025 fab construction CapEx was down high single digits, call it, 7-ish percent. Our CapEx-related business was down about the same amount, and it was really driven by 2 product lines, both within APS, one being fluid management and the other 1 being FOUP. So those were the 2 that were down the most and very much in line with that fab construction CapEx.

So when we think about 2026, and you think about perhaps fab construction CapEx being at least flat and perhaps at this point up slightly though to be determined how much through the course of '26. You're seeing a corresponding recovery both in both those 2 businesses. So our expectations for the year is that Fluid Management and FOUPs will have a better year versus 2025 on the basis of fab construction CapEx at a minimum being flat and most likely being up, but to be determined how that kind of layers in throughout the year. Did you have a follow-up, John?

Well, I'll follow up with how about the March quarter.

So sorry, you cut out on me what the question was what again?

Will they be down in the March quarter or more flattish in the March quarter?

I think at this point, and I'll speak a little bit on a sequential basis. We'll see ultimately how much kind of revenue for that -- those specific product lines fall in first quarter versus second quarter. But I think it's fair to say that we're already starting to see some recovery in those product lines from an order pattern perspective for 2026. And then ultimately, the timing of whether it's first quarter or second quarter, that will be determined by delivery in our customers, but I do think that we've seen order patterns improve for those product lines as we're very early here in 2026.

This does conclude the Q&A portion of today's call. I would now like to hand it back to Jeff Schnell for any additional or closing remarks.

Great. Thank you for joining the call today and your continued interest in Entegris. Please reach out if you have any follow-ups.

This concludes today's Entegris Fourth Quarter 2025 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.

Welcome to the Entegris Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Bill Seymour. Please go ahead.

Good morning, everyone. Earlier today, we announced the financial results for the third quarter of 2025. 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, subsequent quarterly reports that we file 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 and 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.

On the call today are Dave Reeder, our CEO; and Linda LaGorga, our CFO. With that, I'll hand the call over to Dave.

Thank you, Bill, and good morning. As this is my first earnings call as the CEO of Entegris, I want to begin by expressing how honored and excited I am to lead this exceptional company. Throughout my long career in the semiconductor industry and during nearly 2 years on the Entegris Board, I've developed a deep appreciation for the company's culture, its commitment to innovation and its consistent track record of delivering value to both customers and shareholders.

In the 2 months since I started as CEO, I've met with many of our customers around the world in their home country. And during that process, I also visited many of our local manufacturing sites and technology centers, engaging with hundreds of our team members. These interactions have only deepened my conviction in the strength of Entegris, our people and culture, our capabilities and the tremendous opportunities ahead. In my conversations with customers, one message came through loud and clear. Entegris is a trusted, highly engaged and indispensable partner. Our customers rely on us, not only to support their technology road maps and node transitions, but also to help solve complex challenges. To continue earning their trust, we must consistently engage, innovate and execute at the highest level.

Starting with our Asia facilities and continuing throughout the U.S., I've had the opportunity to visit many of our manufacturing sites, seeing firsthand the capability and capacity that we've built. Our existing manufacturing base, including our new facilities in Taiwan and Colorado are valuable and strategic assets. Assets that when fully ramped, will enable us to capture more of the demand that we were unable to support during the last industry upturn and better serve our customers.

Finally, over the past few months, I've also had the opportunity to meet with many of you, our investors. The feedback has been clear. There's strong appreciation for our business model, our historical outperformance and the compelling opportunities ahead. I've also heard and noted some of the candid feedback regarding growth, capital intensity and leverage, all of which we have plans to address over time and which are reflected in my top initial priorities.

I have 3 initial priorities, all based upon my observations over the last 10 weeks. First and most fundamental to our success is customer intimacy. We will continue to support our customers' technology road maps with our deep application expertise, strong organic innovation and accelerated product development. Execution in these areas will continue to translate into winning critical positions of record PORs, which will increase our SAM and accelerate our revenue and content per wafer growth. We're already seeing encouraging momentum in liquid filters, liquid purification, deposition materials like moly and CMP consumables at the most advanced nodes and within the most complicated processes. In addition to these efforts, we are extending our customer engagement model to more customers and more ecosystem partners than ever before. While these efforts are nascent today, we believe they'll help us drive long-term incremental growth.

Our second priority is accelerating the qualification and ramp of our new facilities in Taiwan and Colorado. Ramping these sites is critical to meeting future demand and offsetting the margin pressure driven by the cost of these investments, including incremental depreciation and foregone fixed cost leverage. Our Taiwan facility is expected to increase volume in 2026 and our Colorado facility, which has just been put into service, is expected to substantially complete customer product qualifications next year. Exiting this quarter, we will have largely worked through the majority of the significant manufacturing investment cycle that began in 2022. We subsequently expect CapEx to materially decrease on a year-over-year basis. At our current mix, we believe that our existing manufacturing footprint, when fully ramped, will enable us to support meaningfully more revenue with limited incremental investment.

Third, we're committed to improving free cash flow. Thanks to our team's efforts, we've already seen excellent progress, delivering record operating cash flow in the third quarter, which Linda will discuss more in her section. Looking forward, operating cash flow improvements in combination with reduced CapEx are expected to enhance free cash flow, enabling us to accelerate debt reduction and reduce leverage.

Turning to the third quarter. Third quarter revenue, EBITDA and non-GAAP EPS were all approximately at the midpoint of our guidance ranges, while gross margin percent was roughly 100 bps below guidance, directly driven by the underutilization of our manufacturing assets. Though these assets are underutilized in the current semiconductor environment, I am confident that longer term, our expanded global footprint will enable us to capture share during the next market up cycle, enable peak-to-peak gross margin expansion and enable us to better manage a dynamic international trade environment.

With respect to the semi market, Advanced logic continues to show strong growth, largely driven by AI-enabled applications. In mainstream logic, while inventories have normalized, end demand is still mixed and well below prior peak levels. In memory, pricing trends in recent months have firmed with HBM benefiting from the same AI trends as logic, a continuation of strong growth. And more recently, we've seen a notable shift in sentiment regarding 3D NAND. After a prolonged period of weakness, our NAND customers are now expressing renewed optimism. This renewed optimism is fueled by the potential of accelerating AI-driven demand for 3D NAND as the industry shifts from training large language models to inference workloads.

From an industry wafer starts and CapEx perspective, trends remain consistent with what they've been all year. Wafer starts are modestly higher this year, led by advanced logic, but other markets, as referenced, have remained muted. From an industry CapEx perspective, WFE continues to grow solidly, but industry facilities-related spending, where Entegris has the most exposure, remains muted, down approximately 10% this year due to slower year-over-year fab construction.

These industry trends correlated well with our third quarter performance. Overall, our year-on-year unit-driven revenue grew, led by CMP slurries, pads, cleans and liquid filtration. Notably, liquid filtration achieved record quarterly sales in Q3. Conversely, our CapEx-driven revenue declined high single digits year-on-year in the third quarter, reflecting the slowdown in industry fab construction. This year-over-year slowdown has continued to impact FOUP and fluid handling revenue in our APS division.

Looking into next year, AI-driven growth, both advanced logic and memory is expected to remain strong. And despite pockets of optimism for the rest of the semi market, like others, we are prudently taking a wait-and-see approach, diligently managing our costs while operationally and commercially preparing ourselves for the optimism to translate into orders. In closing, I'm truly excited to lead Entegris into its next chapter. Over the past several weeks, I've gained an even deeper appreciation for the unique and indispensable role we play with our customers and across the semiconductor industry.

As devices become more complex, our expertise in material science and materials purity becomes increasingly critical, helping customers enhance performance and achieve optimal yields. Because of the uniqueness of our value proposition and the quality of our execution, we expect to significantly grow our content per wafer and outperform the market in the coming years. I look forward to connecting with many of you in the coming weeks and months as we close out 2025. Let me now turn the call over to Linda. Linda?

Good morning, and thank you, Dave. Our sales in the third quarter of $807 million were flat year-over-year and up 2% sequentially, in line with guidance. Gross margin on a GAAP basis was 43.5% and 43.6% on a non-GAAP basis in the third quarter, below guidance. The sequential decline in gross margin was primarily driven by the underutilization in our manufacturing facilities, including our new facilities. I want to provide a little more color and clarity on our gross margin. Today, our facilities are underutilized, including our new Taiwan and Colorado facilities, reflecting the current muted industry growth environment and our decision to add new capacity to support our local-for-local strategy.

In addition, we have made short-term decisions to lower production volumes at some of our manufacturing sites to reduce inventory to maximize free cash flow. Based on our current visibility and inventory plan, we believe that gross margin has stabilized in the current range and expect it to increase as we continue to normalize production levels. Back to the Q3 P&L. Operating expenses on a GAAP basis were $229 million in Q3. Operating expenses on a non-GAAP basis in Q3 were $181 million. The reduction in our operating expenses in the second half of 2025 reflects our continued focus on cost management.

Adjusted EBITDA in Q3 was 27.3% of revenue, in line with our guidance. The GAAP tax rate in Q3 was 2%, and the non-GAAP tax rate was 9%, in line with our guidance. As a reminder, our tax rate was lower in Q3 due to the expiration of a tax reserve. GAAP diluted EPS was $0.46 per share in the third quarter. Non-GAAP EPS was $0.72 per share, in line with guidance. Sales for our Materials Solutions in Q3 were $349 million. Sales were up 1% year-on-year and down 2% sequentially. The modest growth year-on-year was driven primarily by CMP consumables and cleaning chemistries. The sequential sales decline was driven primarily by demand shifts between quarters driven by the evolving trade environment. Adjusted operating margin for MS was 18.9% for the quarter, down both year-over-year and sequentially, driven by lower production volumes and product mix.

Sales for Advanced Purity Solutions in Q3 were $461 million, essentially flat year-on-year and up 5% sequentially. The sales increase sequentially was driven by the strength of our liquid filtration business, which had a record quarter in Q3. Adjusted operating margin for APS was 25.9% for the quarter. The year-on-year decline in margin was driven by underutilization of our manufacturing facilities and incremental fixed costs as we ramp Taiwan and Colorado. The sequential increase in margin was driven by sales leverage.

Moving on to cash flow. Our free cash flow of $191 million was our highest in 6 years. The significant improvement in cash flow was driven by our team's focus on working capital, most notably reductions of approximately $50 million in our inventory levels in the third quarter. Free cash flow margin was 11% year-to-date. And as expected, this is a significant improvement from our first half of 2025 free cash flow margin. We continue to expect our free cash flow margin to be in the low double digits for the full year of 2025.

A quick overview of our capital structure. During the third quarter, we paid down $150 million of the term loan from cash on hand. At quarter end, our gross debt was approximately $3.9 billion, and our net debt was $3.5 billion. Gross leverage was 4.3x and net leverage was 3.9x. From a capital allocation standpoint, our single priority remains paying down our debt and reducing our gross leverage to below 4x.

Moving on to our Q4 outlook. We expect our Q4 sales to range from $790 million to $830 million. Gross margin of 43% to 44%, both on a GAAP and non-GAAP basis. GAAP operating expenses of $232 million to $236 million and non-GAAP operating expenses of $184 million to $188 million. We expect EBITDA margin to range from 26.5% to 27.5%. Net interest expense of approximately $47 million. We expect our non-GAAP tax rate to return to a more normalized tax rate of approximately 15% in the fourth quarter. As I mentioned earlier, the increase in Q4 from our lower Q3 tax rate was driven by the expiration of a tax reserve that benefited Q3.

GAAP EPS between $0.35 to $0.42 per share and non-GAAP EPS between $0.62 and $0.69 per share. And we expect depreciation of approximately $53 million in Q4. The incremental depreciation is primarily driven by our Colorado facility being placed into service in October. Before I hand the call over to the operator for Q&A, 2026 is our 60th anniversary as a company, and we plan to host an Investor Day on May 11 next year in New York. We will share more details on this in the coming weeks.

With that, operator, let's open the line for questions.

[Operator Instructions] Our first question comes from Jim Schneider with Goldman Sachs.

Dave, realized you've been part of the Entegris management structure for a little while now as a member of the Board, but I appreciate also the strategic priorities laid out. But maybe you could focus on a couple of differences in terms of maybe one strategic or commercial difference you hope to implement and maybe something operationally that you hope to improve.

Jim, it was good to reconnect, and it was good seeing you at SEMICON West. Starting with the first one, from a commercial perspective, we're going to continue to do the good things that Entegris has always done, which is engage directly with the fabs, the foundries, the IDMs as well as the broader ecosystem and help work with them on their technology road maps and bring our innovation in both purity and materials to their technology road maps and capture those plan of records that we've always spoken about. So we will continue those activities.

New activities, we're looking to bring the model that we have worked with our largest customers and the most advanced manufacturing technology, that customer engagement model, we're looking to expand that out. We're looking to expand that upstream into the ecosystem partners as well as bring some of those advanced capabilities into the mainstream logic as well. So those are the 2 big differences that we're looking to bring. They're nascent today. We're working on them. We have been working on them for the last 10 weeks. But in terms of what would be different, it would be to focus on the ecosystem partners, both upstream as well as the OEMs and then additionally expand that out into the mainstream logic partners.

Operationally, we need to -- we've invested a lot of capital into Rockrimmon more recently, which we plan to open this quarter as well as Southern Taiwan in Kaohsiung, KSP South. And so we need to qualify those facilities, get them fully ramped. We have migrated through a large portion of the qualification process with KSP South. So we're looking to ramp that more meaningfully in volume in 2026 versus '25. And then for Rockrimmon, we're looking to put that facility into production this quarter, complete qualifications largely in '26 and then start to ramp volume towards the end of '26 into '27. Did you have a follow-up, Jim?

Yes, please. That was helpful. And then in terms of broadening the customer base in terms of more mainstream, to what -- how far do you intend to take that? And specifically, can you address whether you'd be willing to use price as a lever there, even if it means growing the top line faster at the expense of gross margin percentage?

So let me start with the broader ecosystem for just a moment. As you think about the most advanced nodes, one thing that we've learned working with the most advanced manufacturers for semiconductors on the planet is that as you start getting into the sub 5-nanometer technologies, the materials that go into the manufacturing process not only have to be more pure at origination, but they also have to be delivered at point of use in a much more pure way. And so those are 2 areas where we've actually started migrating upstream from the fabs and from the IDMs into the broader ecosystem so that the actual input materials into those process start more pure and then ultimately are pure at point of use with our filtration technology. So that would be an example of moving into the ecosystem.

With respect to moving into the mainstream logic, mainstream logic cares deeply about performance and yield, just like the most advanced nodes care about performance and yield. And we've actually learned a lot at the most advanced nodes with respect to how we can continue to deliver yield and performance at the mainstream nodes. So I won't necessarily get into pricing discussions on this call. But what I can tell you is that we have a lot of value to bring not only upstream into the broader ecosystem, but also across the mainstream logic portfolio.

Our next question will come from Tim Arcuri with UBS.

Dave, can you speak to whether the BIS bands, the affiliate band, did that cost you any revenue in September? And how much are you accounting for that in your December guidance? And can you just speak generally, will it -- if it didn't hit you in December, is it going to hit you next year?

No, it didn't contribute this quarter. It didn't hit us this quarter, and we're not expecting it to really impact us in 2026. Did you have a follow-up, Tim?

Yes. Yes, I do. So I guess I'm still trying to understand where utilization is across all the sites. I know that you're ramping up the new sites, but I guess I'm sort of a little wondering why you wouldn't just fill those sites up as quickly as you could. And it sounds like you made the short-term decision to lower production. And I don't know if that was in those locations or in other locations. So can you speak to that and just speak to where utilization is across your whole network?

Sure. In my prepared commentary, one of the things I included in the script was that we had the capability to significantly increase revenue from current levels with the capacity that we have. I didn't necessarily quantify what significant means, but it certainly means more than $1 billion from these levels. So we have a lot of capacity that we've invested in. Starting in 2022, we've been in a pretty intensive capital investment cycle for manufacturing capacity given that we were unable to really satisfy the demand during the last upturn. We've also added to that with some of our local-for-local manufacturing given some of the decoupling that's occurred geopolitically with trade.

And so those 2 things have combined to really create an incredibly strategic manufacturing footprint, but yet one that's underutilized today. So when we think about utilization from here, when we looked at the third quarter specifically, we had the opportunity in the third quarter to really focus on cash from operations, free cash flow. Those are 2 areas that have been highlighted from the investment community, particularly with respect to reducing our leverage. And so we took the opportunity in the third quarter to reduce the inventory, deliver that to the bottom line or the cash line, I should say, with record cash from operations and the highest free cash flow for the last 6 years.

We'll continue to kind of balance inventory build with utilization and free cash flow. We'll continue to balance that going forward. And then as we look into 2026, we expect to expand profitability levels from here, increase utilization levels from here. And as we do that, we'll be able to do it with very limited incremental capacity investments. So CapEx will be down in '26 versus '25, and we'll still be able to deliver incremental revenue growth, utilization and profitability. Linda, anything you'd add to that?

No. I would just say, Tim, to your point or your question, the decisions on reducing inventory were very selective. And the one thing I would add is we will continue to do that a bit more in Q4, but I don't expect the inventory impact to be as much in Q4 as it was in Q3.

Our next question will come from Melissa Weathers with Deutsche Bank.

I wanted to touch on, Dave, some of your commentary on wafer starts and your wait-and-see approach as we go into 2026. It seems like we're pretty -- I mean, hopefully, we're pretty close to the bottom of the cycle, especially in the NAND business. And you guys obviously benefit as soon as utilization start to expand at those fabs. So any incremental color on why you're taking this wait-and-see approach? What are you seeing on wafer starts? And maybe any color on the linearity of orders in the quarter given that it seems like recent weeks have been a lot stronger than the beginning of the quarter.

Thanks, Melissa. First, 10 weeks in still. So forgive me if I'm not quite ready to make a definitive call on 2026 yet. And the commentary with respect to wait-and-see approach, obviously, we're preparing internally for multiple scenarios. We're obviously preparing qualifications and capacity for orders so that we can ramp. We're also continuing to work on the innovation that I spoke about earlier. And that stated and referencing some of the commentary really from the script, all of which have been informed over the last 10 weeks.

Advanced logic, it will continue to be strong. We expect it to remain strong, really driven by the AI trends that we've seen all year this year as well as last year. Mainstream logic, we believe those inventories have largely normalized. In demand still seems a bit mixed. The recovery, we think, continues, but the pace seems pretty slow at this point. I think you've heard very similar stories from most of the early reporting over the last couple of weeks. HBM, obviously, that remains strong. That's continuing to be driven by AI.

Memory in general, I would say, we started seeing some renewed optimism around the time of SEMICON West, you started to see pricing really kind of firm up across all memory DDR as well as NAND. 3D NAND, in particular, there's renewed optimism for really accelerating AI demand, largely on the basis of migrating AI workloads from large language model development to really inference workloads, which, as you know, requires a different type of memory. And so given all of that, what we've positioned the company to do is we've positioned the company to be ready, both with raw materials inventory, work in process, finished goods inventory, though obviously, we're managing that a bit more aggressively for free cash flow.

And we've continued to work with our customers on their plans for ramp. I think there was some good news out from the major memory providers or manufacturers, I should say, this week, in fact, over the last couple of days. That news does seem to be a bit more optimistic than things that we've heard 2 months ago when I first joined. But we'll be ready irrespective of the environment. Did you have a follow-up, Melissa?

Maybe as my follow-up, just on the December quarter guidance, you're guiding about flattish sequentially on revenues. I was a bit surprised to see that, especially because we have certain gate-all-around and 2-nanometer nodes ramping in high volume in the December quarter. I thought that, that would maybe be an uplift to your MS business, maybe a little bit of the microcontamination control as well. So when it comes to gate-all-around and 2-nanometer, can you help us size how much of a growth driver that could be in December and then maybe into 2026 as well? What is that content uplift when you go to gate-all-around?

Great. Let me start maybe at a higher level. The way we thought about fourth quarter let me put it in the context of the way we thought about third. In third quarter, we guided $780 million to $820 million, midpoint of $800 million of revenue, we delivered $807 million. In fourth quarter, we're guiding $790 million of revenue to $830 million of revenue, so midpoint of $810 million. So obviously, we're feeling a bit better going into fourth quarter, given where we are with backlog, where we are in the quarter, where we are with our engagement with customers. We're feeling better in the fourth quarter versus third quarter.

But I'd like to remind you that 75% of our business is driven by wafer starts and about 25% of our business is driven by CapEx. And so wafer starts, we have seen kind of continuing to improve, albeit slowly. Yes, AI is doing well, but that's only about 5% of the volume. And so the other kind of 95% of the volume has been very modest in terms of growth. So that's the 75% portion of our business.

The 25% portion of our business, which is CapEx, is pretty heavily levered towards fab and facilities construction and build-outs. And that has been down, call it, low teens, very high single digits on a year-over-year basis. That continues to create a little bit of a drag in terms of our top line revenue growth. And so really for the fourth quarter, you saw us kind of give guidance related, one, to the broader market and two, specific to our mix of business.

Our next question comes from John Roberts with Mizuho.

In the Material Solutions segment, you talked about the demand shift between quarters. Did the September quarter benefit more from customer inventory build? Or is it the December quarter is going to have more destock that you're anticipating? Or maybe just talk about maybe the month-to-month volatility that you're seeing around this demand shift.

Yes, John, I'll go ahead and take that question. When we were referring to the demand shift around Material Solutions, it was more in relation to the Q2, Q3. It's starting to seem like it was a while ago, but as we remember, Q2 there was a lot going on in the trade environment, and it was difficult at that point to know exactly how demand was shifting between that Q2 and Q3. So as you just look at that growth on MS across those quarters, that's what we were referring to.

Okay. And then, Dave, I think you expect some product rationalization as part of the requalification of your U.S. produced products into China. Is that -- will that be a material sales drag in 2026?

Really, with our sales into China, let me -- maybe it would be helpful if I just kind of outline that broader strategy a bit more fully. We'll be about -- so we'll be greater than 80% local-for-local manufacturing for our Chinese customers by the end of this year. And when I say local for local, I mean that we're satisfying from the region into China without some of the restrictions that you get when it originates from the United States. We expect that number to be greater than 90% in 2026.

We don't believe that number will get to 100% just simply because there are small volume, small running products that from a capital perspective, it would not make sense to kind of move some of that production overseas, local-for-local manufacturing. So that -- those types of products will either satisfy through paying a tariff on those products or obviously, we work with our customers to find a different source, neither of which we believe will materially impact our revenue in '26. We believe the vast majority of our products will be local-for-local manufacturing in 2026.

And our China market, we've actually been quite pleased with. If you were to look at our China markets, we're up about 8% sequentially. We're up 3.5% year-over-year for the quarter. In fact, Asia in general, if you exclude China, is up 7.5% year-over-year in the third quarter, up 8.5% year-to-date. So we're quite pleased with all of our Asia sales, with all of our Asia teams. And then specific to China, we think we have a very capable team in China that has enabled us to manage a pretty complex environment quite well. And the internal teams continue to execute well with respect to local-for-local manufacturing.

Our next question will come from Elizabeth Sun with Citi.

I guess first question for Dave. As a follow-up to an earlier question. As we think about the ramp of 2 nanometers going into next year, maybe you could help a little bit or quantify a little bit about your content growth opportunities going into next year from 3 nanometers to 2 nanometers.

Sure. Look, I'll start again with -- this is my 10th week in. And so I probably won't give too much commentary on 2026 at this stage. Obviously, we're entering the fourth quarter, I would say, with a bit more optimism from both advanced logic as well as from memory. So I think those are 2 things that we're entering the fourth quarter, and we'll most likely be entering 2026 with. Mainstream will continue to most likely have a muted recovery as it kind of continues to work through its demand cycle.

With respect to node transitions, we actually feel quite good about the node transitions. As the manufacturing becomes more complex, you need more products from Entegris, both products with higher purity as well as products that at point of use and at source have to have the same purity as origination. So for liquid filtration, we feel good about our plan of records for advanced logic, photo bulk as well as point of use. We've talked about some of the advanced nodes with respect to memory, particularly 3D NAND with moly and some of the PORs in that space.

CMP slurries, we have 2x more plan of record wins at N2 versus N5. So we feel quite good about our wins there at Advanced Logic. We also have some significant growth plan of records in HBM as well for CMP solutions. And then, of course, we just talked about setting a record quarter for liquid filtration. So I think as you think about these node transitions, node transitions will drag higher content per wafer from Entegris. It hits a lot of the core assets of the company. So as that becomes a larger portion of total volume, then you would expect that portion of our business to grow accordingly.

I think the only caveat I would add to this perhaps would be just keep in mind that the advanced nodes still represent a very small amount of total wafers. You're talking about AI-driven wafers of something like 5% of the total wafers that will be started in 2025. And so while we're excited about the node transitions and we're excited about the content that it pulls from Entegris as we transition through these nodes, they still today represent a small portion of total wafer starts. Did you have a follow-up?

Yes, please. So as a follow-up for Linda, for the KSP and Colorado fabs, is there any incremental headwind on gross margin? Are you expecting with the two are still ramping?

Yes. So overall, with Taiwan and Rockrimmon, again, just stepping back to -- these are amazing facilities for us, very strategic assets, really critical to our local for local. To your question, Elizabeth, we did put Rockrimmon into service in October. And in our Q4 guide, you do see that incremental depreciation. The way I think about it going forward, you will see depreciation in 2026 for the full year. But I'd frame it like this, the Colorado facility is smaller than the Taiwan facility and that incremental depreciation, I view as very manageable. Really right now, going back, as we said, all of our facilities are underutilized. As the volumes ramp across our facilities, we're going to see that benefit to gross margin for the company.

Our next question will come from Bhavesh Lodaya with BMO Capital Markets.

Maybe following up on the capacity utilization question, just one more angle to it. I appreciate that CapEx is moving lower from here, and you have also moved some capacity or some production across regions. As you look at your global footprint today, do you see opportunities to perhaps reduce some capacity, increase utilization at the newer plants? Or do you see yourselves as a rightsized and just waiting for volumes to grow from here?

Bhavesh, it's David. I think it really depends on rate and pace of ramp from here. We have a lot of strategic assets now from a manufacturing perspective. We believe that we're well positioned with some additional qualifications to satisfy kind of local for local in region based upon where the demand is located, we can source from local production. We also believe that we have ample capacity to capture demand in an up cycle, which would generate significantly more revenue from here with very limited incremental additional manufacturing CapEx. So we feel good about all of those things. Would we rationalize our manufacturing footprint at this stage? I think I would just take a step back, I would say, well, what's the rate and pace of industry growth from here? And I think we'll look at that rate and pace and then make real-time decisions based upon what's happening in the broader semiconductor market. Did you have a follow-up, Bhavesh?

Yes. And maybe a question around your priorities as you look forward to capital allocation. Clearly, leverage reduction is top of mind here. Lower CapEx should help with that. But after that is achieved, how do you see capital allocation for Entegris going ahead?

Sure. It's probably worth just commenting again on the big priorities. So the big priorities, again, kind of 10 weeks in and informed by being on the Board for a couple of years as well as 10 weeks at the company. I would start with the customer. It all starts with the customer and technology in semiconductors, as you know. So it starts with the customer and capturing those node transitions and those technology road maps and having the innovation to be relevant in the industry, all areas where the company has excelled. And what we want to do is we want to take that now and we want to expand it out to more of the semiconductor market than perhaps we focused on in the past. So I would start with customers.

From an operations perspective, obviously, we've got a very large and strategic manufacturing footprint. And so now it's the blocking and tackling that you expect from operations, which is the qualification and the efficient production site by site such that we can squeeze the most out of our manufacturing assets. And we believe that we can significantly increase revenue with limited incremental CapEx. So that's why you'll see that CapEx come down on a year-over-year basis.

And then finally, it's using that good customer intimacy with excellent operational focus that will result in more of cash from operations and free cash flow that then is necessary and required for us to reduce our leverage. So that's kind of the high-level framework from a priority perspective. Now to get to the basis of your question is our near-term priority for capital allocation is to continue to pay down debt. You saw us in the third quarter, we were able to generate meaningful free cash flow. We paid down the debt an incremental $150 million in the third quarter. We expect to generate more free cash flow in the fourth quarter, use that free cash flow subsequently to then reduce the debt load further.

That will be the near-term focus will be to reduce our leverage. Obviously, once we get to our leverage to a place that's less than 3x, and I would prefer closer to 2 than 3, then we'll be able to start looking at other perhaps more interesting and strategic capital allocation strategies. And I'll just save that kind of commentary perhaps for Capital Markets Day in the second quarter that Linda mentioned as well as for conversations in the future.

Our next question will come from Chris Parkinson with Wolfe Research.

Could we just dig in a little bit more into what you're seeing in APS and just how we should -- I understand you don't want to talk too much about 2026. But just in terms of the trends in the second half, have they been surprising to you, better or worse? And how do you see things through at least the balance of the year?

Specific to APS Obviously, we're seeing good trends in liquid filtration. We commented that we had a record quarter in the third quarter for liquid filtration. That's driven from some of the ecosystem that I spoke about earlier, needing higher purity as well as from direct engagement with some of the most advanced manufacturers. And we're looking to kind of extend some of those learnings to the broader market. So all of those comments kind of fit and tie together with what we saw in the third quarter.

Fluid management in FOUPs, those are a bit more CapEx driven, as you know. So they've been challenged with respect to when you see facilities and fab build-outs on a year-over-year basis, a number of something like high single digit, low teens depending on which service you're looking at. Obviously, that CapEx-related portion of our business, fluid management and FOUPs has been impacted by that. It's been impacted by that all year. It was impacted by it in the third quarter.

We expect it to be impacted and our guidance includes the fact that it would be impacted continuing into the fourth quarter. We'll see what happens with that trend in 2026. The good news is that the base has come down in '25, and then we'll see how it develops further into 2026. I think that's probably the best high-level color I can give you for APS. Did you have a follow-up, Chris?

Yes. Just in your initial conversations with shareholders, and obviously, I'm sure you already had some familiarity. But just what was the most surprising thing that you heard in terms of broad-based feedback from the position you were in to the one you're in now in terms of was there anything surprising? Is there anything you thought that perhaps the organization needs to do a little bit better in terms of communication? Just -- what was that -- you mentioned some blunt feedback. I'd love it if you could expand on that.

Yes. I think when I spoke to shareholders, and I had the opportunity to meet with shareholders on 4 different occasions in the last 10 weeks as a member of the company, the feedback from shareholders were really related to the growth, the profitability and the leverage. I think those were the -- and I know I'm kind of grouping those into high-level categories. But those were the 3 categories that almost all of the commentary fit in. There was a lot of feedback with respect to how long will it take you to generate more free cash flow to get through the investment cycle to help reduce this leverage. I think that was probably the category that had the most commentary given the understanding of the current state of the semiconductor market.

But I wouldn't discount the commentary on growth. So as you think about those as direct feedback from investors delivered in multiple forums, and then you look at from a company perspective, what can we do to kind of address all 3 of those. The growth perspective or the growth category, I should say, that really starts with the customer. It starts with the customers that we tend to spend the most time with historically, which are the most advanced manufacturing customers. And then what we want to do is we want to extend that further up into the ecosystem. These are the suppliers to those customers.

And then we also want to extend more of those learnings to the mainstream logic customers given that those are not opportunities that we've historically focused on. So that would address largely the growth. Obviously, we're continuing to invest in innovation. We're continuing to invest in node transitions, all those things the company has always done, but really just kind of expanding our lens with respect to where our products can play into the market so that we can start to drive not only top line growth, but then also start to fill some of these facilities that we have invested in that have significant available capacity.

And then as we do that, not only obviously, do we get the utilization, start to get some of that fixed cost absorption that you'd like to get out of these facilities, but then that would also then translate into cash flow. And so that's how the priorities hang together. That was the feedback from investors. It was also the observations in my 10 weeks kind of on the ground here at Entegris.

And to address the second part of your question, I'll address it 2 ways. You asked what could we do better? Let me just talk briefly on what I think we do well. I have been very impressed with the quality of the teams. And when I say the quality of the teams, I'm specifically talking about the technical expertise as well as the quality of the teams in region. We have some amazing employees around the world, and I had the chance to start in Asia. and the quality of our teams in Asia is very impressive, both technically as well as commercially. And so that's an area that was incredibly -- I had high expectations, and it's exceeded my expectation on that front.

Things that we could do better. We do great work in region -- in all the regions. So whether it's Europe, the U.S. or Asia, we do great work in region. Sometimes we're a little slow in communicating across regions. So that's an area that we've already worked to improve. And so that's an area that we focused a bit more on. And then, of course, we're focusing on ramping these facilities. I think that's an area getting through the qualifications, getting the volume and release to manufacturing done so that we can start to produce more out of these facilities that we've invested in. That's another area that we want to continue to work on through 2026.

Our next question will come from Alexky with KeyBanc Capital Markets.

I wanted to ask you about qualification of the KSP site. Where are you in that process relative to your goals? And once you fully qualify that site, do you expect that to have a positive effect on your margins? Or is this neutral because you're replacing production of one site with the other?

We're happy with our qualifications in KSP, though I would say that we're behind schedule. We have worked diligently to qualify some of the highest runners. We still have some more products that are in call, but we do have some of the higher runners now qualified. We do believe we're going to be able to materially increase our volume in '26 versus what we were able to deliver in '25. But we still have some qualifications to go, and we are a little behind schedule with respect to where we thought we would be at this point in time.

And so that's an area that has gotten renewed focus from us. We have put additional and incremental leadership into Taiwan to help facilitate this process. We're getting very frequent updates with respect to how we're performing not only on production, but also on incremental qualifications of products, so this is very much a top-of-mind process for us. In terms of positive impacts, Linda, do you want to comment on that?

Yes. Alex, let me help you a bit as you think about the margins and how it might relate to Taiwan. I step back and think about our ecosystem, our facilities. And as we mentioned, we're underutilized across the facilities. And then with our new facilities, Taiwan and Colorado, we have some incremental fixed costs. We also have state-of-the-art processes. These are state-of-the-art manufacturing facilities. So there is some marginal benefit to there to margin. But think about it as the whole ecosystem. And again, as we start to see the volume, and we mentioned we do expect to see some volume uplift and some growth in 2026, that's going to then help us see that improvement in the margins overall.

I think you already answered 2 questions so I'll let somebody else ask.

I think we have time for one more question.

Our last question today will come from Edward Yang with Oppenheimer.

My question is on AI. The 5% exposure that you referenced, is that for Entegris specifically or the industry? One of your competitors talked about getting closer to 15%. And related to that, one of the HBM manufacturers announced a long-term CMP agreement with a peer of yours. Do you have something similar? And is your CMP positioning within HBM, is that an area where you over-index or under-index relative to the rest of your business?

Thanks, Edward. The 5% that we're referencing for AI, that's a percentage of total wafer starts. And so while those 5% wafers represent about 30% of the revenue, they're only 5% of the wafer volume. And so when you look at the total wafer volume that will be shipped and started in 2025, 5% of those wafers will be AI. That portion of the market is doing incredibly well. The other 95% of the market is probably still something like 15% down from peak. Obviously, it's slightly different by technology. Mainstream is probably close to that 15%. NAND is probably closer to 25-ish percent down from peak, although that's a layer discussion with respect to how much capacity is actually absorbed based on how many layers.

But in terms of total industry, it's still down pretty meaningfully from peak. So the 5%, again, that's really just a reference with respect to how -- what percentage of the wafers are driven by AI. Obviously, our business, especially on the most advanced nodes, which commands -- tends to command premiums, that portion of the business is doing quite well across the board. And so much higher than the type of growth rates that we're reporting from unit volume, but it's being offset by the rest of the market as well as by CapEx.

With respect to HBM and CMP, let's just talk -- maybe it's worthwhile talking briefly about advanced packaging. Advanced packaging in general is a portion of the market from a CapEx perspective is growing something like 25%. I don't have a number for you from a unit perspective, but advanced packaging is a portion of the market is growing quite rapidly. And the reason it's growing rapidly, obviously, is because it's connected both to the AI logic as well as to the high-bandwidth memory. And so advanced packaging is a portion of the market where historically, we've not played in a significant way. We are going to generate about $100 million of revenue from advanced packaging this year.

We do have some strategic initiatives for some SAM expansion into the space, which will develop over time that we look forward to talking about at Capital Markets Day. But as it sits today, that's a portion of the market where we're playing a bit more narrowly because we tend to just, in general, be focused more on the front end. On the CMP process that you referenced, we do have some CMP wins in the HBM space. I think that portion of the business, albeit off a small base, is up 100%, I believe, on a year-over-year basis. So we've been quite pleased with that, but obviously, it's starting from a small base. Edward, did you have a follow-up?

Yes. And I'm looking forward to the upcoming Analyst Day. Last year's Analyst Day talked about outperforming the market long term by a pretty significant amount. Do you think that growth formula still holds? And in the context of the industry looking for about 5% MSI growth next year, where would you sit in the level of outperformance within that? I think you referenced like plus 3% to 6% range outperformance.

Let me broaden the question out. And then at the end, I'll come back to it. We are doing quite well in the markets where we compete and where we do focus and participate. For example, slurries and pads are up 15% over the last 12 months. Selective etch is up 40%. Cleans are up more than 10%. And as we mentioned earlier, we just had a record quarter for liquid filtration. So if you look at the areas where we compete, we actually feel very good about how those areas are performing, and we feel quite good about our plan of record.

On the CapEx side, we've spoken about it, but CapEx, and we're particularly tied to facilities, build-outs and construction, that portion of the market is down about 10%, and we're not that different. We're a little bit better than that. But we're down in a very similar vein and of a similar magnitude in that portion of our business, which is creating a drag, if you will, on our top line. The advanced packaging portion of the business, which is growing quite well. That's an area where our exposure is fairly small today.

Obviously, we're expecting about $100 million in 2025, but that represents a big opportunity for us in '26 and beyond. So to come back to your question, with respect to the 3 to 6 points outperformance, 10 weeks in, I do believe that we have the opportunities to significantly outperform the market. And I do think that I look forward to talking to you about that at Capital Markets Day.

I'll now turn the call back over to Bill Seymour for any additional or closing remarks.

Yes. Thank you for joining our call today. Please reach out to me directly if you would like to follow up. Have a good day, and you can now disconnect the call.

Thank you. This concludes today's Entegris Third Quarter 2025 Earnings Conference Call. Please disconnect the lines at this time, and have a wonderful day.