Good day, everyone, and welcome to this Entegris Third Quarter 2018 Earnings Call. Today’s call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Bertrand Loy, Entegris President and CEO. Please go ahead, sir.

Good morning and thank you for joining us today. Before we begin this call, I would like to take a minute to introduce our new VP of Investor Relations, Bill Seymour. Bill, welcome on board. And I would also like to acknowledge the invaluable contributions from Steve Cantor who has led our IR efforts for the past 17 years. Steve, on behalf of everyone at Entegris, thank you and very best wishes for the next chapter of your life. Bill, back to you.

Thank you, Bertrand, and good morning, everyone. Earlier today we announced the financial results for our third quarter. You can access a copy of our press release on our website, entegris.com. 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 which are outlined in detail in our reports and filings with the SEC. On this call we will also refer to non-GAAP financial measures as defined by the SEC and Reg G. You can find our reconciliation table in today’s press release as well as on our website. On the call today are Bertrand and Greg Graves, our CFO. I will hand it back to Bertrand.

Thank you, Bill. This morning I will make some comments on our third quarter performance and our outlook for the remainder of the year. I will also put into context some of the recent news in the semiconductor industry. Greg will follow with more details on our financial results and will provide guidance for the fourth quarter. We will then open the line for questions. During the third quarter, we delivered solid results, in line with our guidance. Results that demonstrated the strength of our execution, the resilience of our broad platform, and the value of our unit driven business model. We grew our sales 15% year-over-year in the third quarter achieving growth across all three divisions, and we generated $110 million of EBITDA. Year-to-date our sales grew 16%, outpacing our markets, and EBITDA as a percentage of revenue improved by over 200 basis points while non-GAAP EPS was up 39%. Finally, the third quarter was the first full quarter of the newest addition to Entegris, SAES Pure Gas. Sales of SAES in the quarter exceeded our expectations and the integration is proceeding well. Now let me start with some perspectives on the industry environment and how it is impacting our business. Fab production levels in Q3 were largely positive across most classes of semiconductor devices. However, as expected and as we discussed in our second quarter call, there have been some capital spending push outs, particularly at memory makers. As you know, our sales are mostly unit driven and are diversified across all types of customers and all parts of the semiconductor manufacturing supply chain. So while we are not immune to short-term fluctuations in the industry capital spending, the impact to us is relatively muted. This can be clearly seen in our recent results. While the industry has…

Thank you, Bertrand. We are pleased with our execution this year. Through the first nine months of 2018 sales of $1.1 billion were up 16% over the same period the prior year. On a non-GAAP basis EPS of $1.42 increased 39% from the same period in 2017. For the third quarter, sales of $399 million were in line with our guidance and grew 15% from a year ago. Q3 included a full quarter of SAES which contributed $29 million to sales. Excluding SAES, sales were down 3% sequentially in the third quarter. The primary drivers of that sequential decline were, as you would expect, more tied to CapEx driven products like gas filtration and fluid handling, with the primary source of weakness being the NAND market. Q3 GAAP diluted earnings per share was $0.34. On a non-GAAP basis we achieved earnings per share of $0.46. Moving on to gross margins, GAAP gross margin included the negative impact of a $3.3 million inventory write-up associated with the SAES Pure Gas acquisition. Our non-GAAP gross margins of 46.4% were up slightly from last year and were in line with our expectations for the quarter. The sequential decline in gross margin was primarily driven by the one-time $2.9 million insurance gain in Q2 and the full quarter impact of SAES. We expect gross margin to be essentially flat on a non-GAAP basis in Q4. GAAP operating expenses included $21.4 million of amortization of intangible assets, $750,000 of integration costs associated with the purchase of SAES Pure Gas, and $500,000 loss on the sale of a small underperforming cleaning services business that was part of our AMH division. Non-GAAP operating expenses in Q3 of $91 million were in line with our guidance. Operating expenses included a full quarter of SAES. We expect non-GAAP operating…

[Operator Instructions] We’ll take our first question from Toshiya Hari with Goldman Sachs. Please go ahead.

Hi, good morning, and thank you so much for taking the question. Bertrand, obviously there’s a bit of a slowdown in the CapEx side of your business. My understanding is that it’s about 25% to 30% of overall revenue for you. How meaningful and how significant is the decline in that 25% to 30% of your business today and what’s the outlook for the next six months or so?

Yes, good morning, Toshiya. So you are right, the CapEx part of our business represents about 30% of our total revenue. The CapEx business for us was up sequentially 15%, including the benefit of the SAES acquisition. If you exclude SAES our CapEx business was down sequentially about 10%. To be honest it was a little bit more than we originally expected and that’s due to a much sharper contraction than expected in our in-line gas filters, dispense systems, flow controllers – a series of products that we sell to equipment makers. On the bright side of things, as I mentioned in my prepared remarks, a number of CapEx product lines did actually really well during the quarter. Our FOUP platform continues to perform at record levels. We are actually in the process of adding capacity in Malaysia, capacity that is expected to come online later this year. Our PSS and our SAES product platforms are doing also extremely well. Those product lines have very strong backlogs; the book to bill ratio continues to be greater than one as we enter the fourth quarter. And those two product platforms will continue to benefit from the need for greater process control, the need for greater purity in the event fabs. So the point I’m trying to make here is that we have a number of very diverse product lines that we call CapEx at Entegris, some of which are clearly tied to equipment sales. And we saw very sharp contractions in those product lines. Some of our CapEx products are tied to new fab and we saw also a moderation in our revenue for those products. And then finally, we have a number of product lines that are really almost in a class of their own, that are more tied to the need for greater purity, the need for better process control. And I would expect those products to continue to defy the gravitational forces of the industry CapEx somehow, if I can put it this way.

Okay, great. Thank you. And then as a follow-up, on the wafer start side of your business it seem like there are multiple puts and takes when I think about your different segments and your different customer base. I think memory is kind of steady despite the price declines because they tend to keep utilization rates high. Perhaps logic is a little bit stronger and may be lagging edge might be a little bit weaker given the weakness in automotive and industrial. But over the next six months how do you sort of view your overall wafer start business trending?

So wafer start was essentially flat quarter-over-quarter for us. And we believe that wafer starts will continue to remain relatively attractive, putting aside the seasonal slowdown that we expect to see in Q4. But if you think about MSI, if you think about wafer start on a more secular basis, we continue to believe that all of those growth drivers remain absolutely intact.

Okay, if I could squeeze one last one for Greg. You talked about the divestiture in AMH. I think you mentioned the product group had about $8 million in revenue on an annual basis, but the improvement it could drive on the profit side of things, can you help us with the magnitude there? And in terms of how you think about OpEx into 2019, you talked about the potential cost synergies with SAES. But for classic Entegris, obviously you guys continue to be commended on the R&D side, but how flexible are you on the SG&A side, if there is a more serious and meaningful downturn in semiconductors? Thank you.

Okay, yes, so first of all with regard to the AMH divestiture, you point out $8 million in revenue. Given the relatively small-scale – I mean when I said modest, it’s probably literally like 20 basis points of tailwind. So it’s not significant but it’s certainly an upward bias. With regard to – I’m sorry the second part of your question…

OpEx into 2019.

With regard to OpEx, so our OpEx has been pretty consistent through this year at right around $90 million. I mean it stepped up between Q1 and Q2 as a function of in Q2 it was the addition of SAES and then in Q3 it stepped up a little bit again as a result of the PSS acquisition – or, I’m backwards, Q2 PSS, Q3 SAES. As we look at that core OpEx going forward, I think we would expect next year just really inflationary increases. The other thing I would note though in terms of flexibility in that, I mean we do have a number of areas where we’ve got – are discretionary, things like travel and entertainment. We use a lot of project costs on the ER&D side. So those things could flex down. We also have a fair amount of flexibility in our variable comp; with the revenue levels we are running at now our variable comp number is pretty meaningful. And that would obviously flex down if the environment were to soften significantly. So I continue to believe our cost structure is quite flexible.

Okay, thank you so much.

And we’ll take our next question from Patrick Ho with Stifel. Please go ahead.

Thank you very much. Bertrand, maybe just as a follow-up to the previous question regarding wafer starts, and maybe specifically for your Specialty Chemicals and Engineered Materials business. Given some of the volatility that is going on right now in the 3D NAND market, how do you look at that business segment given that’s a very strong growth avenue for the Company, but it’s also one that does require a lot of advanced deposition materials and other specialty chemicals? How do you see the outlook for that as we go through kind of a correction stage with 3D NAND?

I think the outlook is actually very bright for our SCEM division. If you look at Q3 this division actually – and if you think about advanced materials, if you think about our graphite business, those two product lines delivered record sales in Q3. Record sales for that division in China, record sales in that division in Korea. So, a lot of those solutions are consumable products. So it is true that there is a softening in the 3D NAND level of CapEx, but I don’t expect that to meaningfully impact the prospects of SCEM. A lot of the opportunities are really around consumable products that will be introduced as the industry transitions from 64 to 96 and later on from 96 to 128. So I think the greatest prospects remain absolutely intact. Remember that SCEM year to date has been growing at 10%. We expect industry – or right now the industry MSI is probably growing at 6% to 7%. So that is about 300 to 400 basis points over the industry, so really good performance this year. I would expect another really strong year next year.

Great, that’s helpful. And maybe as my follow-up question in terms of some of the trailing edge stuff, we’ve heard now from some of the leading analog and I would say mature device makers provide a little bit of a softer outlook, at least in the near-term. And there appears to be some digestion on their end as well, particularly on the inventory front. Given that you still have very good exposure to the trailing edge, which is part of your whole mix strategy, how do you look at that marketplace over the next few quarters?

That’s a good question and I would say, Patrick, it’s a hard question to answer because the answer is very much customer specific. And that’s one of the things we’re trying to capture in our guidance for Q4. I think that we will see some probably greater than normal seasonality at some of those mainstream fabs. I don’t expect that this softness is really here to stay. And as I mentioned earlier, I would expect wafer starts to be very attractive going into 2019.

Great, thank you very much.

And we’ll take our next question from Sidney Ho with Deutsche Bank. Please go ahead.

Good morning. Thanks for taking my question. Just following up to the last couple questions – this may be a little early, but do you have a feel on how CapEx and MSI will do for the first half of next year versus second half of this year and also the full year of 2019? Clearly investors’ concerns have been on the CapEx side, but do you think MSI will also slow down as well given how strongly it has been in the last two years?

Yes, I can provide views on the second half of this year and I think we are somehow suggesting that in our guidance. So if you think about the second half versus the first half of this year, we expect the industry CapEx to contract in the high single digits and we expect wafer starts to be modestly up in the second half of the year versus the first half of – again this year, I’m talking about 2018. And that’s really the context in which we expect to operate in Q4. As it relates to 2019, it’s just too early to provide a qualitative view of 2019. But having said that, as I mentioned a few times on the call today, we continue to expect a positive wafer start environment in 2019. We expect more node transitions in logic, in foundry, in advanced memory next year. That will bode very well for a number of new products that we’ve been developing in very close partnership with the technology leaders in these areas. And finally, as I said, we feel really good about our recent acquisitions. They have been performing very well, they have a very strong order book and I would expect them to be, once again, very strong contributors to our growth in 2019. So, while I will not put that the numbers for you quite yet, I would say that I think 2019 will likely be another record year for Entegris.

Great. Maybe just a follow-up on that. If I look at your full year next year, 2019, I’m curious if you think a 10% growth rate year is possible given just anniversarying your SAES acquisition alone gets you like 4 points of growth.

Sidney, as I said, you will have to wait until the February call for me to translate my qualitative comments into numbers for you.

All right, that’s fair. I’ll try another one. There have been some concerns on the macro trend side – maybe just some inventory adjustments in the semiconductor land. If we assume the economy will hold up well, based on your experience, how long do you think these adjustments will last? And what are some of the data points that you will be watching for and how quickly can you adjust your operations if things do slow down?

So, certainly this is a factor that we are watching very, very closely. It is very hard for us to really understand the level of inventories of our direct customers and it’s even nearly impossible to understand the level of inventory of their customers. But certainly this is going to be a very important factor for the industry going forward. I would only say, as Greg mentioned earlier, that we have a fairly flexible business model. We have demonstrated time and time again that we can flex up and down as our level of business fluctuates. This is the reason why we have set out some of those target models at different revenue levels to give you full visibility on the type of bottom-line performance that you would expect at different revenue levels. And those scenarios are backed by very precise and very actionable plans within the various divisions. So, we don’t expect very significant contraction in the industry and in our business going forward, but if it was to happen we are ready to deal with it – as we have done in the past.

All right. Thank you very much.

And we’ll take our next question from Mike Harrison with Seaport Global Securities. Please go ahead.

Good morning, guys. This is Jacob on for Mike. In AMH could you guys quantify how much the cost savings actions benefited Q3? And then, are there any incremental cost savings that are going to be rolling into Q4?

What I would say in that business, Jacob, we are watching the cost structure very closely. We really talked – about a year ago we talked about three different things happening. One was exiting a facility which we did in Q2; two was divesting this business which we did in Q3; and then cost reductions. The cost reductions that we made, if we were to look at the OpEx of that business, the cost reductions that we made in the later part of last year and the earlier part of this year have essentially stuck, so to speak. But what we’ve seen in that business is, just as we’ve undertaken these initiatives, the volumes have come down and that’s probably our highest fixed cost structure business. As we look at that business going forward however, we view the operating margin as being stable with an upward bias as volumes come back.

All right. And then in SCEM, you had a peer that reported today that saw double-digit revenue growth in their consumable business and then they guided to double-digit revenue growth next quarter. So, comparing this to your 5% growth, I guess was 5% in line with your expectations? And what do you think the market grew at in Q3?

Yes, so it’s a good question. I think that, as I mentioned, some business units had record quarters. I mentioned our graphite business, our advanced material businesses and they have been growing in the mid-teens year-to-date. So a very strong showing for those business units. What we experienced in Q3 however was we saw actually a little bit of contraction in our coating business and we saw a little bit of contraction in our specialty gas business. The reasons are slightly different. If you think about the coating solutions, those are – what we do is we coat chamber components. Those chamber components need to be refurbished. That’s why we call those coating solutions consumables. But we are in the very early innings of that opportunity, so a lot of that business is still subject to the first tool shipments. And as you know, the tool shipments contracted a little bit more than expected sequentially in Q3. So that was a headwind for SCEM in Q3. The other thing was specialty gases, we had actually some distributors that manage their inventory a little bit more aggressively than we were expecting, the inventory of gas cylinders. Frankly this is really not something we are concerned about. We have in the past described similar situations. You may recall the situation in Taiwan last year where we saw pressure on that particular product line. We were expecting that the business would come back and it did come back very strongly in Taiwan. This year it was happening in Japan. We saw some pressure around specialty gases in Japan. We expect that business to come back very strongly. I have no reason to believe it will not.

All right. Thank you very much.

And we’ll take our next question from Chris Kapsch with Loop Capital Markets. Please go ahead.

Yes, good morning. So, toggling back and forth amongst a couple calls, and so apologies if you touched on this already. But if I look at your revenue trends by geography, and it looks like you have a nice chart year to date by country essentially. But if we compare that to what you had posted for the first half of the year, it looks like if there is sort of sequential softening it was most acute in South Korea and Japan. And I understand these numbers can get distorted by specific year ago comps in any given quarter. But generally it looks like the – so year to date Korea was up 19%, Japan 32%; through the first half it was 28% and 40% for those two countries. So, suggesting to me – whereas Taiwan it looks like was stronger. So this suggests to me that if there’s some push out of demand trends it’s in those two regions. So, wondering if you could just speak to that. I think we can conclude that the issues in Korea are tied to the memory market. Would you characterize that? And do you think this is temporary or how much of this can we extrapolate to 2019? And then maybe if you could just elaborate a little bit more on what you just touched upon with respect to Japan.

So Chris, I think you did an exceptional job answering the first part of your question. But you are right, I think if you think about the sequential trends that we experienced in each of the major countries – first I mentioned in my prepared remarks that we were expecting to see strengthening in our Japan – in our Taiwan sales for the backend of the year. We were expecting to see increased fab activity, we were expecting to see no transition and that happened. And that translated into a sequential increase in the high single digits and that’s excluding the SAES impact – the SAES Pure Gas impact. If you think about China, excluding once again the favorable impact of SAES, China was down modestly on a sequential basis. And in China we saw actually two very conflicting factors. On the one hand we saw record sales of SCEM products during the quarter, but that was offset by, as you mentioned and as you would expect, by significant contraction in AMH revenue as several new fab projects were either completed or slowed down. The other regents behaved as you would expect given where we are in the industry cycle. Japan and North America were down sequentially in the low to mid-single digits and it’s really mostly due to the contraction in our equipment business. Remember that our revenue to OEMs customers represent about 12% of our global revenue, but Japan and U.S. are where the vast majority of our equipment customers are based. So that’s where we saw the biggest impact obviously. And as you mentioned, Korea was down 9% roughly sequentially. And again, we saw a record quarter in our advanced deposition, actually in our SCEM business in Korea, but that was offset, as you mentioned, by quite a reduction in our fluid handling sales as we saw a decline in investment in new fab – new NAND fab in Korea. So that’s the background. I think your question about what’s my view on the overall business environment, is it a short-term phenomenon, is it a longer-term phenomenon. We don’t really know and I think that’s one of the reasons we decided to go ahead with a range for guidance that is a little bit wider than usual. We’re trying to account for different types of scenarios going into Q4. Having said that, as I mentioned, I think that the secular growth drivers for the industry remain absolutely intact. And as I mentioned, I think that we will have a very strong 2019 as a company.

Can I just follow up on one customer specifically? Because I believe from prior meetings I’ve had with you guys that Intel, specifically for their 10 nanometer node, I think you have – I don’t want to say disproportionate, but a number of additional processor record wins for that node. And that transition has been delayed multiple times, but there’s some evidence that that is now being resolved. So, just wondering if you’ve started to see any benefit from that node transition yet. Or is that something that was more likely to benefit, I don’t know, the fourth quarter or really more of a 2019 kind of event. Thank you.

So Chris, I will not characterize our competitive position at any given specific customer. But as I said earlier, in general terms we’ve been doing extremely well at the very leading edge. We are looking forward to no transitions in logic, in foundry and in advanced memory. We’ve seen a little bit of a benefit in the backend of this year. I would expect more benefits as we go into 2019. And hopefully that helps you.

Thank you, guys.

And we’ll take our next question from Christian Schwab with Craig-Hallum Capital Group. Please go ahead.

Actually my question was regarding Intel and its potential positive impact on you. I don’t have any other further questions. Thanks.

Thanks, Christian.

And we’ll take our next question from Amanda Scarnati with Citi. Please go ahead.

Hi. Just kind of a follow up on that, can you in any way quantify the impact you would see from a steeper 7 nanometer round at TSMC and 10 nanometer round at Intel kind of in an environment that is offset by weakness in the lagging edge industrial and automotive environment?

As I mentioned, Amanda, I will not quantify opportunities by customer. But remember, the reason why we have cast our growth objective on a relative basis is in fact to try to capture the benefits of all of those various opportunities. And overall, again, we’ve said that the opportunities that we are seeing across our portfolio, across our customers at those very advanced nodes will put us in a position to continuously outpace the market by about 150 to 200 basis points. If you look at our guidance for the full year this year, this is what we will do. We’re looking at an organic growth of about 10% in an environment where the industry will be growing at about 6% to 7%, so we should be doing really well and growing nicely above the industry. We have done that last year, we’ve done that the year before. And as we expect a number of node transitions into 2019, I think this will set the stage for us to perform once again very strongly in 2019.

And then can you just clarify a little bit more the guidance for next quarter? Is this still assuming that most of the decline is coming from the CapEx side of the business with some sort of stability in the unit driven business? Or is there also some weakness in unit driven as well built in?

It’s a good question, Amanda. We expect our unit driven business to be up sequentially next quarter in spite of what we will expect seasonal softness in terms of wafer starts. But that would be offset by continued decline in some of our CapEx products.

Great. And then the up despite the seasonality, is that mostly driven because of SAES or is that because of the different node transitions we are working through at this point?

Did you ask if it was driven by SAES? No, it is not. I mean SAES – SAES has been performing very well in Q3. We expect SAES actually to perform extremely well in Q4. If you recall, we had an expectation of the SAES Pure Gas product line to contribute $50 million to $55 million in the backend of the year. That expectation has moved up and we now expect SAES to be contributing $55 million to $60 million in the backend of the year. And again, that’s I think a fantastic performance given the prevailing industry CapEx environment. So great performance by the team over there.

Great, thank you.

Thank you.

And we’ll take our next question from Toshiya Hari with Goldman Sachs. Please go ahead.

Sorry and thank you for taking the follow-up. Bertrand, you talked a little bit about your business with the OEMs and primarily in North America and Japan. I’m just curious, how much visibility do you have when it comes to how much inventory they have, whether it be gas filters or any other components that you would sell into them?

Not as much as I would like to have, Toshiya. And it’s one of the things that frankly caught us by surprise in Q3, especially our in-line gas filters went from quarterly revenues in the very high single digit to almost something next to zero. And it’s very hard for us to understand exactly where the gas panel integrators or equipment makers inventory sit right now. And obviously that’s going to be a big factor in terms of what we can expect in Q4. We have no doubt that this part of the business will snap back actually very strongly. The real question is will it happen in the middle of Q4, at the end of Q4, or will we have to wait until the beginning of Q1? So I think it is temporary. Our competitive position is as strong or even stronger than ever. But the level of inventory will dictate how soon this business will actually snap back, but it will snap back.

Okay. I guess if it is close to zero there’s not much down side. So that’s a good thing. Thank you. Thanks a lot.

That is exactly the way I’m thinking about it. Thank you.

Thank you.

And at this time there are no further questions. And I would like to turn it back over to Bill Seymour for any closing remarks.

Thank you again for joining the call. Have a great day.