Entegris, Inc. Stock price
Compare with Peer Group
📊 Peer Group
📈 What is it?
The peer group consists of the companies with the most similar business model. They serve as a benchmark for putting a stock into context.
🧮 How is it selected?
Based on similarity of business model, meaning companies from the same industry with comparable products and a similar customer base. That's the only way to compare apples to apples.
🏛️ Why does it matter?
Whether a stock is cheap or expensive is best judged by comparison. A P/E of 18 or an EV/FCF of 20 can look cheap or expensive depending on the yardstick. The peer group gives you the most accurate one: companies with a similar business model that operate under the same conditions.
🎯 What does it mean for investors?
When a metric sits below the peer average, the stock is valued more cheaply relative to its competitors, and above the average more expensively. A discount to the peer group can be an opportunity, but it can also have a reason (for example lower growth). The comparison is a starting point, not a verdict.
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👉 More detailed insights
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👉 More detailed insights
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Key metrics
📘 Market Capitalization
📈 What is it?
Market capitalization shows how much a company is currently worth on the stock market.
🧮 How is it calculated?
🏛️ Why is it important?
It helps classify companies by size (Large, Mid, Small Cap) and indicates their market presence and relative stability.
🧮 Calculation
🎯 What does this mean for investors?
- Large-cap companies tend to be more stable, often pay dividends, but may grow more slowly.
- Smaller firms may offer higher growth potential but come with more volatility.
- Market capitalization is a useful indicator of company size — but not a measure of whether a stock is undervalued or overvalued.
📘 Enterprise Value (EV)
📈 What is it?
Enterprise Value represents the total cost to acquire a company — including its debt and excluding its cash reserves.
🧮 How is it calculated?
(= Market Cap + Net Debt)
🏛️ Why is it important?
EV gives a more complete picture of a company's value than market cap alone and is used in key valuation ratios like EV/FCF or EV/Sales.
🧮 Calculation
🎯 What does this mean for investors?
- Enterprise Value shows the true cost of buying a company, including all financial obligations.
- It is more accurate than just looking at market cap, especially when comparing companies with different levels of debt or cash.
- Professional investors prefer EV-based multiples because they better reflect the company’s full financial footprint.
📘 Net Debt
📈 What is it?
Net Debt shows how much debt remains after subtracting a company’s available cash reserves.
🧮 How is it calculated?
🏛️ Why is it important?
It indicates how dependent a company is on borrowed money and how easily it can service its debt in the short term.
🧮 Calculation
🎯 What does this mean for investors?
- Low or negative net debt signals financial strength and flexibility.
- Companies with strong cash positions are better positioned in crises.
- High net debt increases financial risk — especially in environments with rising interest rates or economic downturns.
📘 Cash
📈 What is it?
Cash represents all liquid assets a company can access immediately — including cash, bank deposits, and short-term investments.
🧮 How is it calculated?
🏛️ Why is it important?
It reflects a company’s financial flexibility and resilience — enabling investments, buybacks, or buffer in downturns.
🧮 Calculation
🎯 What does this mean for investors?
- A strong cash position means greater room for maneuver and crisis resistance.
- Cash-rich companies can invest, pay down debt, or repurchase shares.
- But excess idle cash might indicate a lack of growth opportunities.
📘 Shares Outstanding
📈 What is it?
Shares outstanding represent the total number of a company’s shares currently held by investors — excluding treasury stock.
🧮 How is it calculated?
🏛️ Why is it important?
It’s the basis for key metrics like Earnings Per Share (EPS), Market Capitalization, or the Price/Earnings ratio (P/E).
🧮 Calculation
🎯 What does this mean for investors?
- Fewer shares in circulation typically increase earnings per share — making each share more valuable.
- Share buybacks reduce the number of shares and boost per-share metrics.
- Issuing new shares does the opposite — diluting shareholder value and lowering per-share figures.
📘 Price-to-Earnings Ratio (P/E)
📈 What is it?
The P/E ratio shows how many times a company's earnings per share are reflected in its current share price — in other words, how "expensive" the stock appears relative to its profits.
🧮 How is it calculated?
🏛️ Why is it important?
The P/E ratio is one of the most widely used valuation metrics. It helps investors assess whether a stock appears cheap or expensive compared to its earnings power.
🧮 Calculation
📊 P/E (TTM) = Based on earnings from the last 12 months (Trailing Twelve Months):🎯 What does this mean for investors?
- A low P/E may indicate undervaluation — or signal underlying issues.
- A high P/E may reflect strong growth expectations — or an overvalued stock.
📘 Price-to-Sales Ratio (P/S)
📈 What is it?
The P/S ratio shows how much investors are paying for $1 of the company’s revenue – regardless of profitability.
🧮 How is it calculated?
🏛️ Why is it important?
P/S is especially useful for evaluating growth companies or businesses not yet profitable. It reflects how the market values the company’s sales.
🧮 Calculation
Market Cap = $25.51b | Revenue (TTM) = $3.33b
Market Cap = $25.51b | Estimated Revenue = $3.64b
🎯 What does this mean for investors?
- A low P/S may indicate undervaluation — or low profitability.
- A high P/S can reflect strong growth expectations — or excessive optimism.
- Especially helpful when evaluating companies where profits are low, volatile, or negative.
📘 Enterprise Value to Sales (EV/Sales)
📈 What is it?
EV/Sales shows how much investors are paying for $1 of revenue — considering not just equity, but also debt and cash. It’s the capital structure–adjusted version of the P/S ratio.
🧮 How is it calculated?
🏛️ Why is it important?
It’s ideal for comparing companies with different levels of debt. It reflects a company's true cost relative to its revenue.
🧮 Calculation
Enterprise Value = $28.62b | Revenue (TTM) = $3.33b
Enterprise Value = $28.62b | Forward Revenue = $3.64b
🎯 What does this mean for investors?
- EV/Sales allows for capital structure–neutral company comparisons.
- A lower ratio may indicate undervaluation; a higher one may signal strong growth expectations or overvaluation.
- Especially helpful when evaluating high-growth companies with low or negative earnings.
📘 Enterprise Value to Free Cash Flow (EV/FCF) | ex SBC
📈 What is it?
EV/FCF compares a company’s enterprise value with its free cash flow. The metric therefore shows the multiple of current free cash flow at which a company is valued. EV/FCF ex SBC additionally accounts for stock-based compensation (SBC). While SBC does not represent a direct cash outflow, issuing shares as compensation can dilute existing shareholders. Therefore, SBC is deducted from free cash flow in this adjusted version.
🧮 How is it calculated?
EV/FCF ex SBC = Enterprise Value ÷ (Free Cash Flow (TTM) − SBC)
🏛️ Why is it important?
EV/FCF provides a valuation based on free cash flow and therefore complements earnings-based valuation metrics such as the P/E ratio. The ex SBC version additionally accounts for the economic impact of stock-based compensation and provides a more conservative view from a shareholder perspective.
🧮 Calculation
🎯 What does this mean for investors?
- A low EV/FCF means that enterprise value is low relative to current free cash flow. The reasons should always be considered in the context of the company and its industry.
- A high EV/FCF means that enterprise value is high relative to current free cash flow. This can, for example, reflect high growth expectations or temporarily weak cash generation.
- When SBC is positive and adjusted free cash flow remains positive, EV/FCF ex SBC is generally higher than the standard EV/FCF.
- The metric is particularly useful for companies with relatively stable and predictable cash flows.
- If free cash flow is negative or very low, EV/FCF has limited usefulness and should not be interpreted like a standard valuation multiple.
📘 Price-to-Book Ratio (P/B)
📈 What is it?
The P/B ratio compares a company’s market value to its book value — showing how much investors are paying for each dollar of net assets.
🧮 How is it calculated?
🏛️ Why is it important?
P/B is commonly used for asset-heavy industries like banks or industrials. It helps assess whether a stock is trading above or below its net asset value.
🧮 Calculation
🎯 What does this mean for investors?
- A P/B below 1 may signal undervaluation — or weak profitability.
- A P/B above 1 implies the market expects future value creation (e.g., brand, IP, growth).
- Best used for companies with tangible assets and strong balance sheets.
📘 Dividend per Share (DPS)
📈 What is it?
Dividend per Share shows how much cash a company pays out to shareholders for each share they own – usually on an annual or quarterly basis.
🧮 How is it calculated?
🏛️ Why is it important?
DPS is the absolute value of the payout per share – crucial for income-focused investors and dividend strategies.
🧮 Calculation
🎯 What does this mean for investors?
- A stable or growing DPS often signals a strong, shareholder-friendly business.
- DPS alone doesn’t tell you how attractive the payout is – the stock price also matters (→ see Dividend Yield).
- Long-term dividend growth is often a hallmark of high-quality companies – like the dividend aristocrats.
📘 Dividend Yield
📈 What is it?
Dividend yield shows how large a company’s dividend is in relation to its current share price.
🧮 How is it calculated?
🏛️ Why is it important?
It allows investors to compare dividend payouts across stocks, regardless of price or payout size.
🧮 Calculation
🎯 What does this mean for investors?
- A stable yield can reflect reliable distributions.
- Comparing 1Y and 5Y yield shows whether dividend growth keeps pace with stock price appreciation.
- A low yield isn’t always negative – it can signal strong past performance or growth focus.
📘 Dividend Growth
📈 What is it?
Dividend growth shows how much a company has increased its dividend per share over time.
🧮 How is it calculated?
5Y: Compound Annual Growth Rate (CAGR)
🏛️ Why is it important?
Consistently rising dividends are often a sign of financial strength and shareholder orientation – especially relevant for long-term investors.
🧮 Calculation
🎯 What does this mean for investors?
- Stable dividend growth is a sign of sustainable earning power.
- High dividend growth can significantly boost your total return:
- If a company pays $1 in dividends and increases it by 15% annually over 5 years, you’ll receive $2 per share in year 5 – twice as much as at the start!
📘 Payout Ratio
📈 What is it?
The payout ratio shows what percentage of a company’s earnings (per share) is distributed to shareholders as dividends.
🧮 How is it calculated?
🏛️ Why is it important?
It helps assess whether the dividend is sustainable – especially in relation to the company’s profitability.
🧮 Calculation
🎯 What does this mean for investors?
- A low payout ratio means the company retains more earnings for reinvestment – typical for growth companies.
- A moderate payout (e.g. 25–50%) indicates a healthy balance between returns and reinvestment.
- High payout ratios may seem attractive but can carry risk if earnings decline.
📘 Consecutive Dividend Increases
📈 What is it?
This metric shows how many consecutive years a company has raised its dividend per share – without any cuts or pauses.
🧮 How is it calculated?
(Special dividends are not considered.)
🏛️ Why is it important?
A long track record of increases reflects financial strength, consistency, and shareholder commitment.
🎯 What does this mean for investors?
- A long dividend increase streak builds confidence – especially in volatile markets.
- Such companies are seen as reliable and income-friendly investments.
- The longer the streak, the stronger the company’s dividend discipline.
📘 Revenue
📈 What is it?
Revenue shows how much a company earns in total from selling its products and services – the gross income before any costs are deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Revenue is one of the key figures to assess a company’s size, market position, and growth potential.
🧮 Calculation
🎯 What does this mean for investors?
- Growing revenue indicates rising demand and can be an early signal of future earnings growth.
- Comparing actual and expected revenue reveals trends in the market environment and analyst sentiment.
- Note: Strong revenue alone isn’t enough – margins and profitability matter just as much.
📘 EBITDA
📈 What is it?
EBITDA stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization.” It reflects a company’s operating profit before the effects of financing, taxes, and accounting depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
EBITDA is widely used to evaluate a company’s operating performance – especially across capital-intensive sectors or international comparisons.
🧮 Calculation
🎯 What does this mean for investors?
- A high or growing EBITDA indicates strong operational profitability – independent of taxes, interest, or accounting methods.
- It’s especially useful for comparing companies across sectors or geographies.
- Important: EBITDA is not a net income figure – it excludes key costs like depreciation and interest.
📘 EBIT
📈 What is it?
EBIT stands for “Earnings Before Interest and Taxes.” It reflects a company’s operating profit after depreciation, but before interest and tax expenses.
🧮 How is it calculated?
🏛️ Why is it important?
EBIT is a core profitability metric that shows how well the company performs in its main business operations – independent of capital structure and tax environment.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT indicates strong profitability from the company’s core business – before financial and tax effects.
- It allows better comparison between companies with different debt levels or tax structures.
- Compared to EBITDA, EBIT already accounts for depreciation and reflects capital intensity more clearly.
📘 Net Income
📈 What is it?
Net income is the company’s total profit – the amount left after all expenses, taxes, interest, and depreciation have been deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Net income is the most comprehensive measure of a company’s profitability – showing how much actual profit remains after all business and financing costs.
🧮 Calculation
🎯 What does this mean for investors?
- Growing net income indicates that the company is managing all of its costs efficiently.
- It directly influences valuation metrics like P/E ratio and the company’s dividend capacity.
- Over time, net income trends reveal how resilient and profitable the business model really is.
📘 Free Cash Flow (FCF) | ex SBC
📈 What is it?
Free cash flow shows how much cash remains after a company has covered its operating and capital expenditures. FCF ex SBC additionally deducts stock-based compensation (SBC) to adjust the cash flow for the effect of non-cash SBC.
🧮 How is it calculated?
Free Cash Flow ex SBC = Operating Cash Flow − SBC − Capital Expenditures (CAPEX)
🏛️ Why is it important?
FCF reflects a company’s actual financial strength – independent of reported accounting earnings. It shows how much flexibility a company has for dividends, share buybacks, or debt reduction. FCF ex SBC also deducts stock-based compensation and shows how much cash generation remains after SBC.
🧮 Calculation
🎯 What does this mean for investors?
- High free cash flow indicates that a company has strong financial strength – independent of reported earnings.
- It is often a solid basis for sustainable dividends and share buybacks.
- Declining FCF can be a warning sign, even if reported earnings remain stable.
📘 Revenue Growth
📈 What is it?
Revenue growth shows how much a company’s sales have changed compared to the previous year – both on a trailing basis (TTM) and based on forward projections.
🧮 How is it calculated?
Forward = (Expected revenue ÷ Revenue in prior year − 1) × 100
Forward growth is based on analyst estimates for the current fiscal year.
🏛️ Why is it important?
Rising revenue signals growing demand, business expansion, and market share gains – especially important for growth-oriented companies.
🧮 Calculation
🎯 What does this mean for investors?
- Growth is the engine of long-term value creation – especially in tech and growth sectors.
- What matters is not just current growth, but its sustainability.
- Forward projections reflect whether analysts expect continued momentum – or a slowdown.
📘 EBITDA Growth
📈 What is it?
EBITDA growth shows how much a company’s operating profit (before interest, taxes, depreciation, and amortization) has increased or decreased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBITDA ÷ EBITDA from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
Growing EBITDA indicates improving operational profitability – regardless of financing or accounting effects.
🧮 Calculation
🎯 What does this mean for investors?
- Strong EBITDA growth signals operational efficiency and scalability – especially during growth phases.
- EBITDA growth can be an early indicator of margin and earnings expansion – but should be assessed alongside revenue and EBIT.
📘 EBIT Growth
📈 What is it?
EBIT growth shows how much a company’s operating profit (after depreciation, but before interest and taxes) has increased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBIT ÷ EBIT from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
EBIT growth is a direct indicator of a company’s business performance – taking into account capital intensity through depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- Rising EBIT signals improving operating profitability – even after accounting for depreciation.
- It’s especially important for evaluating companies with significant capital expenditures.
- Combined with revenue and EBITDA growth, EBIT growth provides a well-rounded view of operational progress.
📘 Net Income Growth
📈 What is it?
Net income growth shows how much a company’s bottom-line profit has increased or decreased compared to the previous year – both on a trailing basis (TTM) and based on analyst projections.
🧮 How is it calculated?
Forward = (Expected net income ÷ Net income from prior year − 1) × 100
The forward estimate reflects analysts’ expectations for the current fiscal year.
🏛️ Why is it important?
Net income is the ultimate measure of profitability. Growing net income signals stronger efficiency, cost control, and sustainable earnings power.
🧮 Calculation
🎯 What does this mean for investors?
- Stronger net income boosts valuation, dividend potential, and investor confidence.
- If profits stall while revenue grows, it may signal margin pressure.
📘 Free Cash Flow Growth
📈 What is it?
Free cash flow (FCF) growth shows how a company’s available cash – after covering operating expenses and capital expenditures – has changed compared to the previous year.
🧮 How is it calculated?
🏛️ Why is it important?
Free cash flow reflects real financial strength. Growing FCF indicates more flexibility for dividends, share buybacks, and reinvestment.
🧮 Calculation
🎯 What does this mean for investors?
- Declining FCF may point to rising investments, increasing costs, or weaker operating performance.
- Especially for dividend investors, FCF growth is critical – since dividends are paid from actual available cash.
- A negative trend isn't always bad, but it deserves closer attention.
📘 Gross Margin
📈 What is it?
Gross margin shows how much of a company’s revenue remains after deducting the direct costs of goods sold (like materials and production). It represents the company’s “raw profit” before fixed costs, taxes, and interest.
🧮 How is it calculated?
Or simply: Gross Margin = Gross Profit ÷ Revenue × 100
🏛️ Why is it important?
Gross margin indicates how efficiently a company can produce or procure what it sells. It is a key measure of product-level profitability and pricing power.
🧮 Calculation
🎯 What does this mean for investors?
- A high gross margin suggests strong pricing power and efficient production.
- Falling margins may signal rising input costs or competitive pressure.
- Compared to peers, gross margin offers insights into the quality of a business model.
📘 EBITDA Margin
📈 What is it?
The EBITDA margin shows how much of a company’s revenue remains as operating profit before interest, taxes, depreciation, and amortization.It reflects operating efficiency without being distorted by financing or accounting factors.
🧮 How is it calculated?
🏛️ Why is it important?
The EBITDA margin reveals how much operating income a company generates per dollar of revenue – independent of capital structure and tax effects.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBITDA margin reflects strong core profitability – before accounting distortions.
- It allows for effective comparisons across companies and sectors.
- A stable or growing margin signals efficient cost control and business scalability.
📘 EBIT Margin
📈 What is it?
The EBIT margin shows what percentage of revenue remains as operating profit after depreciation but before interest and taxes.
🧮 How is it calculated?
🏛️ Why is it important?
The EBIT margin reflects a company’s core profitability while accounting for capital intensity (e.g. machinery, infrastructure). It’s especially useful for comparing businesses with different levels of depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT margin shows that the company remains efficient even after factoring in depreciation.
- It’s especially relevant for capital-intensive industries.
- Stable or rising EBIT margins over time are a strong indicator of pricing power and business quality.
📘 Net Margin
📈 What is it?
Net margin shows how much of a company’s revenue remains as bottom-line profit after deducting all costs, interest, taxes, and depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
Net margin reflects a company’s overall efficiency – across operations, financing, and taxation. It shows how much actual profit is generated from each dollar of revenue.
🧮 Calculation
🎯 What does this mean for investors?
- A high net margin means the company is not only strong operationally but also manages financing and taxes efficiently.
- Peer comparisons reveal business quality and competitiveness.
- Declining margins despite revenue growth can be a red flag for rising costs or inefficiencies.
📘 Free Cash Flow Margin | ex SBC
📈 What is it?
The Free Cash Flow Margin shows how much free cash flow a company generates relative to its revenue. In simplified terms, free cash flow is calculated as operating cash flow minus capital expenditures. The Free Cash Flow Margin ex SBC additionally accounts for stock-based compensation (SBC). While SBC does not represent a direct cash outflow, issuing shares as compensation can dilute existing shareholders. Therefore, SBC is deducted from free cash flow in this adjusted metric.
🧮 How is it calculated?
Free Cash Flow Margin ex SBC = (Free Cash Flow − SBC) ÷ Revenue × 100
🏛️ Why is it important?
The Free Cash Flow Margin shows how efficiently a company converts its revenue into free cash flow. Strong free cash flow can provide financial flexibility for dividends, share buybacks, debt repayment, or further investments. The ex SBC version additionally accounts for the economic impact of stock-based compensation and therefore provides a more conservative view of cash generation from a shareholder perspective.
🧮 Calculation
🎯 What does this mean for investors?
- A high Free Cash Flow Margin shows that a company converts a high proportion of its revenue into free cash flow.
- This can provide greater financial flexibility for dividends, share buybacks, debt repayment, or investments.
- The Free Cash Flow Margin ex SBC additionally accounts for potential shareholder dilution from stock-based compensation.
- The long-term trend is particularly important. Declining margins can, for example, result from higher investments, changes in working capital, or weaker operating performance.
📘 Equity Ratio
📈 What is it?
The equity ratio indicates what portion of a company’s total assets is financed by shareholders’ equity – in other words, how much it relies on its own capital.
🧮 How is it calculated?
🏛️ Why is it important?
A high equity ratio reflects financial strength and stability, especially during downturns. It’s a key indicator of a company’s solvency and long-term risk profile.
🧮 Calculation
🎯 What does this mean for investors?
- Companies with high equity ratios are generally more resilient and less dependent on external debt.
- Low equity ratios can signal higher risk or aggressive financial strategies.
- Important: Always assess the equity ratio in combination with the return on equity (ROE). This shows not just how stable the company is – but also how efficiently it uses shareholder capital.
📘 Return on Equity (ROE)
📈 What is it?
Return on equity (ROE) shows how efficiently a company uses its shareholders’ equity to generate profit. In other words: how much net income is earned per dollar of equity.
🧮 How is it calculated?
🏛️ Why is it important?
ROE is a core profitability metric. It helps investors understand whether a company delivers attractive returns on the capital provided by its shareholders.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROE indicates that the company is using its capital efficiently and profitably.
- It’s especially meaningful for capital-intensive businesses or firms with high equity bases.
- Important: A very high ROE can also result from high debt levels – always interpret it alongside the equity ratio to assess financial health.
📘 Return on Capital Employed (ROCE)
📈 What is it?
ROCE measures how efficiently a company generates profits from its total capital – including both equity and interest-bearing debt.
🧮 How is it calculated?
It evaluates the return on all capital employed, regardless of how it’s financed.
🏛️ Why is it important?
ROCE is ideal for comparing companies with different financing structures. It shows how well management uses capital to create value for both shareholders and creditors.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROCE means the company uses its capital efficiently – regardless of whether it's funded by debt or equity.
- The higher the ROCE compared to peers, the more value the company creates with its invested capital.
- Especially relevant for capital-intensive sectors like industrials, energy, or infrastructure.
📘 Return on Invested Capital (ROIC)
📈 What is it?
ROIC measures how efficiently a company generates returns from the capital invested in its core operations – regardless of whether the capital comes from equity or debt.
🧮 How is it calculated?
- NOPAT = Net Operating Profit After Taxes
- Invested Capital = Operating assets minus non-interest-bearing liabilities
🏛️ Why is it important?
ROIC is one of the most accurate indicators of capital efficiency. Unlike return on equity, it is not distorted by leverage and shows how much value is created for all capital providers.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROIC shows how effectively a company uses the capital that is truly invested in its core operations.
- Unlike ROCE, ROIC focuses only on the capital that is actively used to run the business – and that requires a return (i.e. interest-bearing).
- Especially useful when comparing companies with large amounts of excess cash or non-interest-bearing liabilities – giving a more realistic picture of capital efficiency.
📘 Leverage Ratio (Debt-to-Equity)
📈 What is it?
The leverage ratio indicates how much a company relies on interest-bearing debt (such as loans and bonds) relative to its shareholders’ equity.
🧮 How is it calculated?
🏛️ Why is it important?
This ratio helps assess a company’s financial structure and risk profile. High leverage can enhance returns – but also increases exposure to interest rate changes and financial stress.
🧮 Calculation
🎯 What does this mean for investors?
- A low leverage ratio signals financial strength and independence.
- A higher ratio can improve returns in good times but increases risk during downturns or rising interest rate periods.
- 👉 Always interpret in the context of industry, capital intensity, and interest rate environment.
📘 SBC | in % Revenue
📈 What is it?
SBC (Stock-Based Compensation) refers to equity-based compensation granted by a company to its employees and executives. The percentage shows SBC relative to revenue.
🧮 How is it calculated?
SBC as % of Revenue = (SBC ÷ Revenue) × 100
🏛️ Why is it important?
Stock-based compensation is a real cost factor for shareholders. It can increase the number of shares outstanding and therefore dilute existing shareholders. The percentage of revenue shows how heavily a company relies on equity-based compensation and how significant this form of compensation is relative to the size of the business.
🧮 Calculation
🎯 What does this mean for investors?
- A lower figure is generally positive: Stock-based compensation is relatively small compared with the company's revenue.
- A high figure can indicate greater reliance on stock-based compensation and a higher potential risk of dilution. However, it is also important to consider whether the company offsets dilution through share buybacks.
- The trend over time should also be considered. A high but declining percentage presents a different picture from a persistently high or increasing percentage.
- A single-digit SBC-to-revenue ratio is not unusual among many growth-oriented and technology companies.
📘 SBC as % of FCF
📈 What is it?
SBC (Stock-Based Compensation) refers to equity-based compensation granted by a company to its employees and executives. The percentage shows SBC relative to free cash flow (FCF).
🧮 How is it calculated?
SBC as % of FCF = (SBC ÷ Free Cash Flow) × 100
🏛️ Why is it important?
Stock-based compensation is a real cost factor for shareholders. It can increase the number of shares outstanding and therefore dilute existing shareholders. The percentage of free cash flow shows how significant SBC is relative to the cash generated by the company. Since SBC is non-cash compensation, it is typically not deducted as a cash outflow when calculating FCF.
🧮 Calculation
🎯 What does this mean for investors?
- A lower value is generally favorable. Stock-based compensation is relatively small compared with the company's cash generation.
- A high value means that SBC represents a significant portion of the company's reported free cash flow, even though SBC itself is non-cash.
- The higher the value, the more significant SBC can be as an economic cost to shareholders, particularly when it results in share dilution.
📘 SBC Growth 1Y
📈 What is it?
SBC Growth 1Y shows how much a company's stock-based compensation has changed compared to the previous year.
🧮 How is it calculated?
🏛️ Why is it important?
SBC Growth shows whether stock-based compensation is becoming more or less significant for shareholders. If SBC increases significantly, it can lead to greater shareholder dilution over time. At the same time, SBC is a non-cash expense that reduces earnings on the income statement but is added back in the cash flow statement.
🧮 Calculation
🎯 What does this mean for investors?
- A high positive value is generally negative, as rising SBC can increase the burden on shareholders, particularly through potential dilution.
- What matters is whether the development of SBC is sustainable over the long term. Some level of SBC is common among many growth and technology companies.
📘 Share Count Growth 1Y
📈 What is it?
Share Count Growth 1Y shows how much the number of shares outstanding has increased or decreased over a one-year period.
🧮 How is it calculated?
🏛️ Why is it important?
The number of shares determines how many shares the company's earnings and assets are distributed across. If the share count decreases, existing shareholders' relative ownership increases. If it increases, existing shareholders are diluted. The metric therefore makes dilution and share buybacks directly visible.
🧮 Calculation
🎯 What does this mean for investors?
- A negative value is generally positive, as the number of shares outstanding is decreasing.
- A positive value indicates dilution of existing shareholders.
- A declining share count is not automatically positive: It also matters at what price the shares are repurchased and how the buybacks are financed.
📘 Shareholder Yield
📈 What is it?
Shareholder Yield measures how much capital a company returns to shareholders or uses to reduce debt relative to its market capitalization. It goes beyond dividend yield by also including share buybacks and debt reduction.
🧮 How is it calculated?
🏛️ Why is it important?
Dividend yield only tells part of the story. Companies can also return capital through share buybacks, while reducing debt can strengthen the balance sheet. Shareholder Yield combines all three components into one metric, giving investors a broader view of how a company uses its capital.
🧮 Calculation
🎯 What does this mean for investors?
- A higher Shareholder Yield generally indicates more capital being returned to shareholders or used to reduce debt.
- The mix matters: dividends, buybacks, and debt reduction can affect shareholders in different ways.
- Share buybacks are most beneficial when shares are repurchased at attractive valuations.
- Investors should also consider whether dividends, buybacks, and debt reduction are sustainable over time.
📘 Earnings per share (EPS)
📈 What is it?
Earnings per Share (EPS) shows how much profit is attributable to a single share – and is one of the most important metrics for evaluating a company's performance.
🧮 How is it calculated?
The diluted share count reflects potential new shares that could be issued through options, convertible bonds, or other rights.
🏛️ Why is it important?
EPS is the basis for many key valuation metrics like P/E ratio, PEG ratio, or payout ratio. It enables comparisons of profitability across companies, regardless of their size.
🧮 Calculation
🎯 What does this mean for investors?
- EPS captures per-share profitability and is especially useful for comparisons over time or with analyst estimates.
- Rising EPS may signal consistent growth or share buybacks.
- Important: Always use diluted EPS for more realistic valuations – especially in companies with stock-based compensation.
📘 Free cash flow per share (FCF per share)
📈 What is it?
Free Cash Flow per Share shows how much free cash flow a company generates per outstanding share – after investments, but before dividends or debt repayments.
🧮 How is it calculated?
Free cash flow is calculated as operating cash flow minus capital expenditures (CapEx).
🏛️ Why is it important?
FCF per Share reveals how much real cash is available per share – useful for dividends, buybacks, or reducing debt. Unlike net income, free cash flow is harder to manipulate and often seen as a more reliable metric.
🧮 Calculation
🎯 What does this mean for investors?
- High FCF per share signals strong financial flexibility.
- It shows how much capital the company can effectively reinvest or return to shareholders.
- Particularly relevant for dividend payers and capital-efficient businesses.
📘 Short interest
📈 What is it?
Short interest indicates how many shares of a company are currently sold short – that is, borrowed and sold by investors who expect the price to decline.
🧮 How is it calculated?
It reflects the percentage of a company’s shares that are being shorted relative to the total shares available.
🏛️ Why is it important?
Short interest serves as a sentiment indicator: A high value may signal skepticism or bearish expectations – but also increases the potential for a short squeeze if prices rise unexpectedly.
🧮 Calculation
🎯 What does this mean for investors?
- Low short interest usually indicates market confidence in the company.
- High short interest can be a warning sign – or an opportunity if sentiment shifts.
- Especially relevant in volatile markets or ahead of key earnings releases.
📘 Employees
📈 What is it?
The employee count shows how many people a company employs worldwide – offering insights into its size, structure, and business model.
🧮 How is it calculated?
🏛️ Why is it important?
It helps assess operational scale, labor intensity, and cost structure. Combined with revenue and profit, it enables key metrics like revenue per employee or productivity.
🧮 Calculation
🎯 What does this mean for investors?
- A high headcount can signal operational complexity – but also significant growth capacity.
- Revenue per employee is a key indicator of efficiency.
- Especially useful for comparing tech, industrial, or service-heavy companies.
📘 Revenue per employee
📈 What is it?
Revenue per employee indicates how much revenue a company generates on average per employee – a key measure of efficiency and productivity.
🧮 How is it calculated?
The employee count is typically taken from the most recent annual report.
🏛️ Why is it important?
This metric helps compare business models – especially between labor-intensive and technology-driven companies. A high value suggests automation, operational efficiency, or strong value creation per head.
🧮 Calculation
🎯 What does this mean for investors?
- A high revenue per employee indicates a scalable and margin-strong business model.
- A low figure may reflect labor-intensive operations or lower value-add.
- Especially helpful when comparing tech companies to industrial or service sectors.
Entegris, Inc. Stock Analysis
Analyst Opinions
18 Analysts have issued a Entegris, Inc. forecast:
Analyst Opinions
18 Analysts have issued a Entegris, Inc. forecast:
Entegris, Inc. Events
Past Events
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AUG
4
Q2 2026 Earnings Call
2 months ago
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APR
30
Q1 2026 Earnings Call
5 months ago
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FEB
10
Q4 2025 Earnings Call
8 months ago
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OCT
30
Q3 2025 Earnings Call
11 months ago
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StocksGuide Free
Entegris, Inc. — Q2 2026 Earnings Call
1. Management Discussion
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.
2. Question Answer
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.
Entegris, Inc. — Q2 2026 Earnings Call
Entegris, Inc. — Q2 2026 Earnings Call
Beat guidance across the board as AI-driven semiconductor demand lifts revenue, margins and cash flow, enabling faster deleveraging.
📊 Quarter at a Glance
- Revenue: $883M (+11% YoY)
- Adjusted net income: $143M (+42% YoY)
- Gross margin: 47.6% (non‑GAAP; highest since early 2022)
- Free cash flow: $120M (14% of sales; working capital improvements, ~20‑day C2C reduction)
- Leverage: Net debt/EBITDA 3.4x after $200M debt paydown; expect to finish year in high‑2x
🎯 What Management Says
- Scaling: Management is proactively unlocking capacity (direct labor +20% vs year‑end 2025) and increasing throughput to meet AI‑driven unit and CapEx demand.
- Portfolio: Focused on core semiconductor offerings—exiting U.S. life‑sciences fluid management and closing the Logan, UT facility to concentrate investment.
- Execution: Operational initiatives and productivity actions are driving margin expansion and strong cash conversion, enabling faster deleveraging and targeted reinvestment.
🔭 Outlook & Guidance
- Q3: Revenue $905–$935M (midpoint ≈ +14% YoY); gross margin 47.5–48.5%; GAAP EPS $0.75–$0.83; non‑GAAP EPS $0.96–$1.04.
- Q4/FY: Q4 revenue guided ~+4% sequential (~mid‑teens YoY); FY items: net interest ≈ $180M, non‑GAAP tax ≈14%, diluted shares ≈154M, CapEx ≈$250M; expect end‑year net leverage in high‑2x.
- Market view: Now tracking 20+ leading‑edge fab expansions; expects industry growth ~7–8% in 2026; main near‑term risk is timing of fab construction and mixed mainstream demand.
❓ Analyst Q&A
- CapEx vs WFE: 25% of revenue is CapEx (wafer fab equipment (WFE) 10%, fab construction 15%); 2026 upside driven by WFE while larger fab‑construction revenue will materialize into 2027.
- Margins/flow‑through: Q2 margin beat included a ~70bp sequential lift; a useful‑life accounting adjustment added ~150bp YoY; management cites roughly 60% incremental gross‑profit flow‑through.
- Product dynamics: Liquid filtration hit a fourth record quarter; KSP (Taiwan) site moving toward breakeven and ramping; molybdenum precursor demand roughly 2x YoY, supporting MS segment gains.
⚡ Bottom Line
Entegris delivered above‑guidance growth, expanding margins and strong free cash flow tied to AI‑led semiconductor investment. The company is scaling capacity, narrowing focus to higher‑value semiconductor businesses and rapidly reducing leverage; investors should watch timing of fab‑construction revenue and the November Investor Day for the long‑term financial framework.
Entegris, Inc. — Q1 2026 Earnings Call
1. Management Discussion
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.
2. Question Answer
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.
Entegris, Inc. — Q1 2026 Earnings Call
Entegris, Inc. — Q1 2026 Earnings Call
Solid Q1 with revenue growth, margin gains, and deleveraging underway.
📊 Quarter at a Glance
- Revenue: $812 million (+5% YoY)
- Gross Margin: 46.9% (above guidance; normalized ≈46.4%)
- Adjusted EBITDA: $226 million (27.8% of revenue)
- EPS (non-GAAP): $0.86
- Free Cash Flow: $144 million (18% of sales)
🎯 What Management Says
- Margin Momentum: Structural gross margin expansion driven by productivity, fixed-cost absorption, favorable mix, and a useful-life accounting benefit.
- Leverage Plan: Deleveraging toward ~3x net leverage by end-2026, aided by ongoing profitability and debt paydown.
- Capital Focus: Sukhi Nagesh named CFO; continued focus on disciplined capital allocation and potential returns after leverage normalizes.
🔭 Outlook & Guidance
- 2Q Revenue: $815–$845 million; ~5% YoY at midpoint.
- 2Q Margin & EPS: Gross 46.25–47.25%; GAAP EPS $0.53–$0.61; Non-GAAP $0.76–$0.84.
- Full Year & CapEx: CapEx ≈$250 million; depreciation ≈$140 million/yr; net interest ≈$190 million; non-GAAP tax ≈15%.
- Investor Day: Investor Day in New York City set for early November 2026.
❓ Analyst Q&A
- Margin & Capacity: Focus on sustained gross-margin expansion; gradual benefit from facility rationalizations (Colorado, KSP) and higher utilization as volumes rise.
- CapEx Margins: Incremental volume improves fixed-cost absorption; CapEx-driven margins expected to rise with utilization and capacity ramp.
- China/Asia & M&A: China remains derisked with solid second half; leverage authority discussed, with potential capital returns or strategic options after deleveraging.
⚡ Bottom Line
Entegris delivered a solid start to 2026: revenue up ~5%, margin improvement, and strong free cash flow, supporting a clear deleveraging path toward about 3x net leverage by end-2026. The company sees a multi-year CapEx cycle fueling growth, with additional clarity on capital allocation and potential returns once leverage normalizes; Investor Day is set for November 2026, and Sukhi Nageshjoins as CFO to guide execution.
Entegris, Inc. — Q4 2025 Earnings Call
1. Management Discussion
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.
2. Question Answer
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.
Entegris, Inc. — Q4 2025 Earnings Call
Entegris, Inc. — Q3 2025 Earnings Call
1. Management Discussion
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.
2. Question Answer
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.
Entegris, Inc. — Q3 2025 Earnings Call
Financial data from Entegris, Inc.
Revenue
Revenue is the sum of all sales generated by a company, e.g. for its products or services.
Revenue (TTM) metric explainedDirect Costs
Direct costs are the costs incurred directly in connection with the manufacture of the product or service.
Gross Profit
Gross Profit indicates how much of the revenue remains in the company after deducting direct production costs. If the percentage share of sales is calculated, this is referred to as the gross margin.
Gross Profit metric explainedSelling and Administrative Expenses
Selling, general and administrative expenses (SG&A) include all expenses for marketing and sales as well as the general administration of the company.
Research and Development Expense
Research and development costs (R&D) provide information on how much the company invests in the research and development of its products. The costs are particularly interesting as a percentage of revenue and in comparison to direct competitors.
EBITDA
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is the company's earnings before interest, taxes, depreciation and amortization. The EBITDA margin is calculated as a percentage of sales.
Depreciation and Amortization
Depreciation represents reductions in the value of the company's assets (e.g. due to wear and tear on machinery).
EBIT (Operating Income)
EBIT (Earnings Before Interest and Taxes) is the company's profit before interest and taxes, also known as the operating income. The EBIT Margin is calculated as a percentage of sales at
.
Net Profit
Net Profit represents the profit or loss after deduction of all costs.
Net Profit metric explainedStocksGuide Premium
| Jun '26 |
+/-
%
|
||
| Revenue | 3,326 3,326 |
3%
3%
100%
|
|
| - Direct Costs | 1,811 1,811 |
3%
3%
54%
|
|
| Gross Profit | 1,515 1,515 |
3%
3%
46%
|
|
| - Selling and Administrative Expenses | 449 449 |
5%
5%
14%
|
|
| - Research and Development Expense | 313 313 |
5%
5%
9%
|
|
| EBITDA | 753 753 |
6%
6%
23%
|
|
| - Depreciation and Amortization | 185 185 |
0%
0%
6%
|
|
| EBIT (Operating Income) EBIT | 568 568 |
8%
8%
17%
|
|
| Net Profit | 306 306 |
3%
3%
9%
|
|
In millions USD.
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Entegris, Inc. Stock News
Company Profile
Entegris, Inc. engages in the development, manufacture, and supply of specialty materials for microelectronics industry. It operates through the following business segments: Specialty Chemicals and Engineered Materials (SCEM); Advanced Materials Handling (AMH); and Microcontamination Control (MC). The SCEM segment provides purity process chemistries, gases, and materials and delivery systems to support semiconductor and other advance manufacturing processes. The AMH segment develops solutions to monitor, protect, transport, and deliver critical liquid chemistries and substrates for a broad set of applications in the semiconductor industry and other high-technology industries. The MC segment offers solutions to purify critical liquid chemistries and gases used in semiconductor manufacturing processes and other high-technology industries. The company was founded in 1966 and is headquartered in Billerica, MA.
StocksGuide Premium
| Head office | United States |
| CEO | Mr. Reeder |
| Employees | 7,700 |
| Founded | 1966 |
| Website | www.entegris.com |


