SEC Filing | Entegris, Inc.

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entg-20221001

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________________________________

FORM 10-Q

______________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 1, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-32598

_______________________________________

Entegris, Inc.

(Exact name of registrant as specified in its charter)

_________________________________________

Delaware

41-1941551

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

129 Concord Road,

Billerica,

Massachusetts

01821

(Address of principal executive offices)

(Zip Code)

(978) 436-6500

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

_______________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.01 par value per share

ENTG

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

As of October 31, 2022, there were 149,034,584 shares of the registrant’s common stock outstanding.

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ENTEGRIS, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

FOR THE QUARTER ENDED OCTOBER 1, 2022


Description			Page
PART I Financial Information

Item 1. Financial Statements			4
Condensed Consolidated Balance Sheets as of October 1, 2022 and December 31, 2021			4
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended October 1, 2022 and October 2, 2021			5
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended October 1, 2022 and October 2, 2021			6
Condensed Consolidated Statements of Equity for the Three and Nine Months Ended October 1, 2022 and October 2, 2021			7
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 1, 2022 and October 2, 2021			9
Notes to Condensed Consolidated Financial Statements			11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3. Quantitative and Qualitative Disclosures about Market Risk			42
Item 4. Controls and Procedures			42

PART II Other Information

Item 1. Legal Proceedings			44
Item 1A. Risk Factors			44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			45
Item 6. Exhibits			46
Signatures			48

Cautionary Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements.” The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should,” “may,” “will,” “would” or the negative thereof and similar expressions are intended to identify such forward-looking statements. These forward-looking statements may include statements about the ongoing impacts of the COVID-19 pandemic and the conflict in Ukraine on the Company’s operations and markets, including supply chain issues and inflationary pressures related thereto; future period guidance or projections; the Company’s performance relative to its markets, including the drivers of such performance; market and technology trends, including the duration and drivers of any growth trends; the development of new products and the success of their introductions; the focus of the Company’s engineering, research and development projects; the Company’s ability to execute on our business strategies, including with respect to Company’s expansion of its manufacturing presence in Taiwan; the Company’s capital allocation strategy, which may be modified at any time for any reason, including share repurchases, dividends, debt repayments and potential acquisitions; the impact of the acquisitions the Company has made and commercial partnerships the Company has established, including the acquisition of CMC Materials, Inc. (“CMC Materials”); trends relating to the fluctuation of currency exchange rates; future capital and other expenditures, including estimates thereof; the Company’s expected tax rate; the impact, financial or otherwise, of any organizational changes; the impact of accounting pronouncements; quantitative and qualitative disclosures about market risk; and other matters. These forward-looking statements are based on current management expectations and assumptions only as of the date of this Quarterly Report, are not guarantees of future performance and involve substantial risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. These risks and uncertainties include, but are not limited to, weakening of global and/or regional economic conditions, generally or specifically in the semiconductor industry, which could decrease the demand for the Company’s products and solutions; the level of, and obligations associated with, the Company’s indebtedness, including the debts incurred in connection with the acquisition of CMC Materials; risks related to the acquisition and integration of CMC Materials, including unanticipated difficulties or expenditures relating thereto, the ability to achieve the anticipated synergies and value-creation contemplated by the acquisition of CMC Materials and the diversion of management time on transaction-related matters; risks related to the COVID-19 pandemic on the global economy and financial markets, as well as on the Company, its customers and suppliers, which may impact its sales, gross margin, customer demand and its ability to supply its products to its customers; raw material shortages, supply and labor constraints, price increases, inflationary pressures and rising interest rates; operational, political and legal risks of the Company’s international operations;

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the Company’s dependence on sole source and limited source suppliers; the Company’s ability to meet rapid demand shifts; the Company’s ability to continue technological innovation and introduce new products to meet customers’ rapidly changing requirements; substantial competition; the Company’s concentrated customer base; the Company’s ability to identify, complete and integrate acquisitions, joint ventures or other transactions; the Company’s ability to effectively implement any organizational changes; the Company’s ability to protect and enforce intellectual property rights; the ongoing conflict in Ukraine and the global response thereto; the increasing complexity of certain manufacturing processes; changes in government regulations of the countries in which the Company operates, including the imposition of tariffs, export controls and other trade laws and restrictions and changes to national security and international trade policy, especially as they relate to China; fluctuation of currency exchange rates; fluctuations in the market price of the Company’s stock; and other risk factors and additional information described in the Company’s filings with the Securities and Exchange Commission (the “SEC”), including under the heading “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed on February 4, 2022, and in the Company’s other SEC filings. Except as required under the federal securities laws and the rules and regulations of the SEC, the Company undertakes no obligation to update publicly any forward-looking statements or information contained herein, which speak as of their respective dates.

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PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

ENTEGRIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In thousands, except share and per share data)	October 1, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	752,787	$	402,565
Restricted cash	1,880		—
Trade accounts and notes receivable, net of allowance for credit losses of $4,304 and $2,349	519,793		347,413
Inventories, net	823,637		475,213
Deferred tax charges and refundable income taxes	22,024		35,312
Other current assets	102,155		52,867
Total current assets	2,222,276		1,313,370
Property, plant and equipment, net of accumulated depreciation of $1,120,337 and $653,104	1,383,693		654,098
Other assets:
Right-of-use assets	95,397		66,563
Goodwill	4,405,292		793,702
Intangible assets, net of accumulated amortization of $585,137 and $494,601	1,969,729		335,113
Deferred tax assets and other noncurrent tax assets	18,637		17,671
Other	38,380		11,379
Total assets	$	10,133,404	$	3,191,896
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt, including current portion of long-term debt	$	219,787	$	—
Accounts payable	187,697		130,734
Accrued payroll and related benefits	149,269		108,818
Accrued interest payable	74,513		6,073
Other accrued liabilities	166,924		84,240
Income taxes payable	42,831		49,136
Total current liabilities	841,021		379,001
Long-term debt, excluding current maturities, net of unamortized discount and debt issuance costs of $147,515 and $7,973	5,627,698		937,027
Pension benefit obligations and other liabilities	54,048		37,816
Deferred tax liabilities and other noncurrent tax liabilities	411,450		64,170
Long-term lease liability	82,870		60,101
Commitments and contingent liabilities	—		—
Equity:
Preferred stock, par value $.01; 5,000,000 shares authorized; none issued and outstanding as of October 1, 2022 and December 31, 2021	—		—
Common stock, par value $.01; 400,000,000 shares authorized; issued and outstanding shares as of October 1, 2022: 149,236,984 and 149,034,584, respectively; issued and outstanding shares as of December 31, 2021: 135,719,366 and 135,516,966, respectively	1,492		1,357
Treasury stock, at cost: 202,400 shares held as of October 1, 2022 and December 31, 2021	(7,112)		(7,112)
Additional paid-in capital	2,190,961		879,845
Retained earnings	988,848		879,776
Accumulated other comprehensive loss	(57,872)		(40,085)
Total equity	3,116,317		1,713,781
Total liabilities and equity	$	10,133,404	$	3,191,896

See the accompanying notes to condensed consolidated financial statements.

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ENTEGRIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended				Nine months ended
(In thousands, except per share data)	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Net sales	$	993,828	$	579,493	$	2,335,963	$	1,663,689
Cost of sales	622,157		315,289		1,344,075		899,115
Gross profit	371,671		264,204		991,888		764,574
Selling, general and administrative expenses	226,446		71,032		404,239		215,042
Engineering, research and development expenses	64,990		41,972		160,953		121,692
Amortization of intangible assets	65,346		11,843		90,491		35,616
Operating income	14,889		139,357		336,205		392,224
Interest expense	84,150		9,395		129,027		31,744
Interest income	(1,395)		(56)		(2,065)		(181)
Other expense, net	12,852		1,917		27,373		29,807
(Loss) income before income tax expense	(80,718)		128,101		181,870		330,854
Income tax (benefit) expense	(7,015)		10,640		30,377		39,947
Net (loss) income	$	(73,703)	$	117,461	$	151,493	$	290,907

Basic (loss) earnings per common share	$	(0.50)	$	0.87	$	1.08	$	2.15
Diluted (loss) earnings per common share	$	(0.50)	$	0.86	$	1.08	$	2.13

Weighted shares outstanding:
Basic	148,570		135,583		140,045		135,383
Diluted	148,570		136,631		140,892		136,556

See the accompanying notes to condensed consolidated financial statements.

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ENTEGRIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)


	Three months ended				Nine months ended
(In thousands)	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Net (loss) income	$	(73,703)	$	117,461	$	151,493	$	290,907
Other comprehensive (loss) income, net of tax
Foreign currency translation adjustments	(37,461)		637		(48,603)		(1,622)
Pension liability adjustments	—		—		73		39
Interest rate swap - cash flow hedge	40,028		—		40,028		—
Income tax expense	(9,285)		—		(9,285)		—
Total Interest rate swap - cash flow hedge	30,743		—		30,743		—
Other comprehensive (loss) income	(6,718)		637		(17,787)		(1,583)
Comprehensive (loss) income	$	(80,421)	$	118,098	$	133,706	$	289,324

See the accompanying notes to condensed consolidated financial statements.

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ENTEGRIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


(In thousands)	Common shares outstanding	Common stock		Treasury shares	Treasury stock		Additional paid-in capital		Retained earnings		Foreign currency translation adjustments		Defined benefit pension adjustments		Interest Rate Swap - Cash flow hedge		Total
Balance at December 31, 2020	135,149	$	1,351	202	$	(7,112)	$	844,850	$	577,833	$	(36,588)	$	(840)	$	—	$	1,379,494
Shares issued under stock plans	392	4		—	—		(13,470)		—		—		—		—		(13,466)
Share-based compensation expense	—	—		—	—		7,138		—		—		—		—		7,138
Repurchase and retirement of common stock	(145)	(1)		—	—		(904)		(14,095)		—		—		—		(15,000)
Dividends declared ($0.08 per share)	—	—		—	—		8		(10,840)		—		—		—		(10,832)
Pension liability adjustment	—	—		—	—		—		—		—		39		—		39
Foreign currency translation	—	—		—	—		—		—		(3,716)		—		—		(3,716)
Net income	—	—		—	—		—		84,676		—		—		—		84,676
Balance at April 3, 2021	135,396	$	1,354	202	$	(7,112)	$	837,622	$	637,574	$	(40,304)	$	(801)	$	—	$	1,428,333
Shares issued under stock plans	559	5			—		15,185		—		—		—		—		15,190
Share-based compensation expense	—	—		—	—		7,519		—		—		—		—		7,519
Repurchase and retirement of common stock	(130)	(1)		—	—		(813)		(14,186)		—		—		—		(15,000)
Dividends declared ($0.08 per share)	—	—		—	—		7		(10,945)		—		—		—		(10,938)

Foreign currency translation	—	—		—	—		—		—		1,457		—		—		1,457
Net income	—	—		—	—		—		88,770		—		—		—		88,770
Balance at July 3, 2021	135,825	$	1,358	202	$	(7,112)	$	859,520	$	701,213	$	(38,847)	$	(801)	—		$	1,515,331
Shares issued under stock plans	65	1			—		779		—		—		—		—		780
Share-based compensation expense	—	—		—	—		7,467		—		—		—		—		7,467
Repurchase of common stock	(166)	(2)		—	—		(1,050)		(18,948)		—		—		—		(20,000)
Dividends declared ($0.08 per share)	—	—		—	—		—		(10,896)		—		—		—		(10,896)

Foreign currency translation	—	—		—	—		—		—		637		—		—		637
Net income	—	—		—	—		—		117,461		—		—		—		117,461
Balance at October 2, 2021	135,724	$	1,357	202	$	(7,112)	$	866,716	$	788,830	$	(38,210)	$	(801)	$	—	$	1,610,780

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(In thousands)	Common shares outstanding	Common stock		Treasury shares	Treasury stock		Additional paid-in capital		Retained earnings		Foreign currency translation adjustments		Defined benefit pension adjustments		Interest Rate Swap - Cash flow hedge		Total
Balance at December 31, 2021	135,719	$	1,357	202	$	(7,112)	$	879,845	$	879,776	$	(38,863)	$	(1,222)	$	—	$	1,713,781
Shares issued under stock plans	366	4		—	—		(12,742)		—		—		—		—		(12,738)
Share-based compensation expense	—	—		—	—		9,285		—		—		—		—		9,285

Dividends declared ($0.10 per share)	—	—		—	—		—		(13,660)		—		—		—		(13,660)
Pension liability adjustment	—	—		—	—		—		—		—		73		—		73
Foreign currency translation	—	—		—	—		—		—		(2,128)		—		—		(2,128)
Net income	—	—		—	—		—		125,705		—		—		—		125,705
Balance at April 2, 2022	136,085	$	1,361	202	$	(7,112)	$	876,388	$	991,821	$	(40,991)	$	(1,149)	$	—	$	1,820,318
Shares issued under stock plans	88	1			—		5,397		—		—		—		—		5,398
Share-based compensation expense	—	—		—	—		10,182		—		—		—		—		10,182

Dividends declared ($0.10 per share)	—	—		—	—		—		(13,661)		—		—		—		(13,661)

Foreign currency translation	—	—		—	—		—		—		(9,014)		—		—		(9,014)
Net income	—	—		—	—		—		99,491		—		—		—		99,491
Balance at July 2, 2022	136,173	$	1,362	202	$	(7,112)	$	891,967	$	1,077,651	$	(50,005)	$	(1,149)	—		$	1,912,714
Shares issued under stock plans	137	1			—		(4,644)		—		—		—		—		(4,643)
Share-based compensation expense	—	—		—	—		38,077		—		—		—		—		38,077
Issuance of common stock in connection with CMC Materials acquisition	12,927	129		—	—		1,265,561		—		—		—		—		1,265,690
Dividends declared ($0.10 per share)	—	—		—	—		—		(15,100)		—		—		—		(15,100)

Interest Rate Swap - Cash flow hedge	—	—		—	—		—		—		—		—		30,743		30,743
Foreign currency translation	—	—		—	—		—		—		(37,461)		—		—		(37,461)
Net loss	—	—		—	—		—		(73,703)		—		—		—		(73,703)
Balance at October 1, 2022	149,237	$	1,492	202	$	(7,112)	$	2,190,961	$	988,848	$	(87,466)	$	(1,149)	$	30,743	$	3,116,317

See the accompanying notes to condensed consolidated financial statements.

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ENTEGRIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine months ended
(In thousands)	October 1, 2022		October 2, 2021
Operating activities:
Net income	$	151,493	$	290,907
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	93,489		67,510
Amortization	90,491		35,616
Share-based compensation expense	57,544		22,124
Charge for fair value mark-up of acquired inventory sold	61,932		—
Provision for deferred income taxes	(56,964)		(12,307)
Loss on extinguishment of debt and modification	2,235		23,338
Charge for excess and obsolete inventory	17,582		10,066
Other	38,670		265
Changes in operating assets and liabilities:
Trade accounts and notes receivable	(34,378)		(53,358)
Inventories	(180,335)		(115,187)
Accounts payable and accrued liabilities	83,307		37,577
Other current assets	(4,248)		10,575
Income taxes payable and refundable income taxes	(15,637)		(35,275)
Other	15,049		2,623
Net cash provided by operating activities	320,230		284,474
Investing activities:
Acquisition of property, plant and equipment	(318,836)		(133,986)
Acquisition of businesses, net of cash acquired	(4,474,925)		(2,250)
Other	1,124		4,416
Net cash used in investing activities	(4,792,637)		(131,820)
Financing activities:
Proceeds from revolving credit facility and short-term debt	476,000		451,000
Payments of revolving credit facility and short-term debt	(271,000)		(601,000)
Proceeds from long-term debt	4,940,753		—
Payments of long-term debt	(145,000)		—
Payments for debt extinguishment costs	—		(19,080)
Payments for debt issuance costs	(99,489)		(5,069)
Payments for dividends	(42,413)		(32,650)
Issuance of common stock	10,764		17,872
Repurchase and retirement of common stock	—